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Cross-Border Bank Contagion in Europe

Author

Listed:
  • Reint Gropp

    (European Business School and Centre for European Economic Research (ZEW))

  • Marco Lo Duca

    (European Central Bank)

  • Jukka Vesala

    (Financial Supervision Authority of Finland (Fin-FSA), Helsinki)

Abstract

We analyze cross-border contagion among European banks in the period from January 1994 to January 2003. We use a multinomial logit model to estimate, in a given country, the number of banks that experience a large shock on the same day (“coexceedances”) as a function of common shocks and lagged coexceedances in other countries. Large shocks are measured by the bottom 95th percentile of the distribution of the daily percentage change in distance to default of banks.We find evidence of significant cross-border contagion among large European banks, which is consistent with a tiered cross-border interbank structure. The results also suggest that contagion increased after the introduction of the euro. JEL Codes: G21, F36, G15.

Suggested Citation

  • Reint Gropp & Marco Lo Duca & Jukka Vesala, 2009. "Cross-Border Bank Contagion in Europe," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 97-139, March.
  • Handle: RePEc:ijc:ijcjou:y:2009:q:1:a:4
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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