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Assessing the Systemic Risk Between American and European Financial Systems

Author

Listed:
  • Ayhan Orhan
  • Vahit Ferhan Benli
  • Rui Alexandre Castanho

Abstract

The present study focuses on the analysis of systemic risk in the American and European financial systems for the period from 20 August 2004 to 28 February 2014. The global crisis in 2007 has brought attention to the urgent need to understand the systemic risk issues and the stability of financial systems along with their actors. To assess systemic risk, Adrian and Brunnermeier (2011) advocated the use of conditional value-at-risk (CoVaR) methodology in integrating quantile regression. Instead of the value-at-risk (VaR), which is unable to detect systemic risk, we seek to use the CoVaR methodology to calculate the systemic risk levels of the United States and European markets. In the light of related findings, we conclude that the insurance sector contributes most to the systemic risk in the USA, while in the Eurozone, it is the financial services sector that is highly interconnected with systemic risk.

Suggested Citation

  • Ayhan Orhan & Vahit Ferhan Benli & Rui Alexandre Castanho, 2020. "Assessing the Systemic Risk Between American and European Financial Systems," Prague Economic Papers, Prague University of Economics and Business, vol. 2020(6), pages 649-671.
    • Handle: RePEc:prg:jnlpep:v:2020:y:2020:i:6:id:756:p:649-671
    DOI: 10.18267/j.pep.756
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    References listed on IDEAS

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    1. Carlos Castro & Stijn Ferrari, 2012. "Measuring and testing for the systemically important financial institutions," Working Paper Research 228, National Bank of Belgium.
    2. Castro, Carlos & Ferrari, Stijn, 2014. "Measuring and testing for the systemically important financial institutions," Journal of Empirical Finance, Elsevier, vol. 25(C), pages 1-14.
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    More about this item

    Keywords

    Systemic risk; financial regulation and management; value-at-risk; CoVaR; quantile regression;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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