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Has the global banking system become more fragile over time ?

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  • Anginer, Deniz
  • Demirguc-Kunt, Asli

Abstract

This paper examines time-series and cross-country variations in default risk co-dependence in the global banking system. The authors construct a default risk measure for all publicly traded banks using the Merton contingent claim model, and examine the evolution of the correlation structure of default risk for more than 1,800 banks in more than 60 countries. They find that there has been a significant increase in default risk co-dependence over the three-year period leading to the financial crisis. They also find that countries that are more integrated, and that have liberalized financial systems and weak banking supervision, have higher co-dependence in their banking sector. The results support an increase in scope for international supervisory co-operation, as well as capital charges for"too-connected-to-fail"institutions that can impose significant externalities.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5849.

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Date of creation: 01 Oct 2011
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Handle: RePEc:wbk:wbrwps:5849

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Keywords: Banks&Banking Reform; Debt Markets; Financial Intermediation; Emerging Markets; Access to Finance;

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References

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  1. Xin Huang & Hao Zhou & Haibin Zhu, 2009. "A framework for assessing the systemic risk of major financial institutions," Finance and Economics Discussion Series 2009-37, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Diego Avanzini & Alejandro Jara, 2013. "A PCA Approach to Common Risk Exposures in the Chilean Banking System," Working Papers Central Bank of Chile 707, Central Bank of Chile.
  2. Cihak, Martin & Demirguc-Kunt, Asli, 2013. "Rethinking the state's role in finance," Policy Research Working Paper Series 6400, The World Bank.
  3. Cihak, Martin & Demirguc-Kunt, Asli & Feyen, Erik & Levine, Ross, 2012. "Benchmarking financial systems around the world," Policy Research Working Paper Series 6175, The World Bank.
  4. Anginer, Deniz & Demirguc-Kunt, Asli & Zhu, Min, 2012. "How does bank competition affect systemic stability ?," Policy Research Working Paper Series 5981, The World Bank.
  5. Buncic, Daniel & Melecky, Martin, 2011. "Macroprudential Stress Testing of Credit Risk: A Practical Approach for Policy Makers," Economics Working Paper Series 1139, University of St. Gallen, School of Economics and Political Science.
  6. Anginer, Deniz & Demirguc-Kunt, Asli & Zhu, Min, 2014. "How does competition affect bank systemic risk?," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 1-26.

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