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Measuring contagion risk in international banking

Author

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  • Avdjiev, S.
  • Giudici, P.
  • Spelta, A.

Abstract

We propose a distress measure for national banking systems that incorporates not only banks’ CDS spreads, but also how they interact with the rest of the global financial system via multiple linkage types. The measure is based on a tensor decomposition method that extracts an adjacency matrix from a multi-layer network, measured using banks’ foreign exposures obtained from the BIS international banking statistics. Based on this adjacency matrix, we develop a new network centrality measure that can be interpreted in terms of a banking system's credit risk or funding risk.

Suggested Citation

  • Avdjiev, S. & Giudici, P. & Spelta, A., 2019. "Measuring contagion risk in international banking," Journal of Financial Stability, Elsevier, vol. 42(C), pages 36-51.
    • Handle: RePEc:eee:finsta:v:42:y:2019:i:c:p:36-51
    DOI: 10.1016/j.jfs.2019.05.014
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    More about this item

    Keywords

    International banking; Contagion risk; Multi-layer networks; Tensor decompositions;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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