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Ailing Mothers, Healthy Daughters? Contagion in the Central European Banking Sector

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  • Tomas Fiala
  • Tomas Havranek

Abstract

Foreign-dominated banking sectors, such as those prevalent in Central and Eastern Europe, are susceptible to two major sources of systemic risk: (i) linkages between local banks and (ii) linkages between a foreign mother bank and its local subsidiary. Using a nonparametric method based on extreme value theory, which accounts for fat-tail shocks, we analyze inter- dependencies in downward risk in the banking sector of the Czech Republic, Hungary, Poland, and Slovakia during 1994-2013. In contrast to the pre- sumptions of the current regulatory policy of these countries, we find that the risk of contagion from a foreign mother bank to its local subsidiary is substantially smaller than the risk between two local banks.

Suggested Citation

  • Tomas Fiala & Tomas Havranek, 2014. "Ailing Mothers, Healthy Daughters? Contagion in the Central European Banking Sector," William Davidson Institute Working Papers Series wp1069, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2014-1069
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    Cited by:

    1. Csóka, Péter & Havran, Dániel & Váradi, Kata, 2016. "Konferencia a pénzügyi piacok likviditásáról. Sixth Annual Financial Market Liquidity Conference, 2015 [Conference on the liquidity of financial markets. Sixth Annual Financial Market Liquidity Con," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 461-469.
    2. Zorobabel Bicaba & Zuzana Brixiov?? & Mthuli Ncube, 2014. "Capital Account Policies, Imf Programs And Growth In Developing Regions," William Davidson Institute Working Papers Series wp1085, William Davidson Institute at the University of Michigan.

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    More about this item

    Keywords

    systemic risk; extreme value theory; financial stability; Central Eastern Europe; banking; parent-subsidiary relationship;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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