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Systemic Risk in the Italian Banking Industry


  • Nicola Borri
  • Marianna Caccavaio
  • Giorgio Di Giorgio
  • Alberto Maria Sorrentino


type="main"> Systemic risk is the risk of a collapse of the entire financial system, typically triggered by the default of one, or more, interconnected financial institutions. In this paper, we estimate the systemic risk contribution of Italian-listed banks for the period 2000–2011. We follow a methodology first proposed by Adrian and Brunnermeier and measure banks' contribution to systemic risk by ΔCoVaR, which measures the contribution of bank i to the financial system VaR when bank i is in a state of distress. We define ‘the system’ as the set of Italian-listed banks in the sample. First, we find that the information contained in ΔCoVaR is different from that contained in the VaR. Therefore, regulators should take it into account in order to monitor the systemic risk posed by banks. Second, recent policy debate has focused on the danger posed by large banks and on the need to curb their size. We find that size is indeed the main predictor of a bank contribution to systemic risk. However, in the post-Lehman period, leverage is also an important predictor of systemic risk. Consequently, any financial regulation designed only to curb banks' size could not completely eliminate systemic risk because it is exactly in crisis times that leverage becomes relevant. Hence, we conclude that ΔCoVaR is a very useful policy tool for regulators that can estimate which factors are more relevant in terms of contribution to systemic risk.

Suggested Citation

  • Nicola Borri & Marianna Caccavaio & Giorgio Di Giorgio & Alberto Maria Sorrentino, 2014. "Systemic Risk in the Italian Banking Industry," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 43(1), pages 21-38, February.
  • Handle: RePEc:bla:ecnote:v:43:y:2014:i:1:p:21-38

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    Cited by:

    1. repec:eee:ecofin:v:43:y:2018:i:c:p:141-157 is not listed on IDEAS
    2. Mikhail Stolbov, 2017. "Assessing systemic risk and its determinants for advanced and major emerging economies: the case of ΔCoVaR," International Economics and Economic Policy, Springer, vol. 14(1), pages 119-152, January.

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