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Factors driving systemic risk of banks in Latin America

Author

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  • Jacob Kleinow

    (Universidad Nacional de Colombia
    Technische Universität Bergakademie Freiberg)

  • Andreas Horsch

    (Technische Universität Bergakademie Freiberg)

  • Mario Garcia-Molina

    (Universidad Nacional de Colombia)

Abstract

We investigate the drivers of systemic risk and contagion among banks in the Latin American financial sector. First, a systemic risk measure analysing tail co-movements of daily stock returns of all Latin American banks is derived. We then run panel regressions for our systemic risk measure using idiosyncratic bank characteristics and macroeconomic control variables. Our results include various significant drivers of systemic importance of banks in Latin America like bank size, market concentration and high government indebtedness. Interestingly, we empirically prove that during the financial/economic crisis (2006–2011) systemic risk was driven by banks with low earning prospects and relatively sound deposit management whereas poor capital regulation drove systemic risk of banks during the stable periods before (2003–2005) and after the crisis (2012–2014).

Suggested Citation

  • Jacob Kleinow & Andreas Horsch & Mario Garcia-Molina, 2017. "Factors driving systemic risk of banks in Latin America," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 211-234, April.
  • Handle: RePEc:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-015-9341-7
    DOI: 10.1007/s12197-015-9341-7
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    7. Michel Alexandre & Thiago Christiano Silva & Colm Connaughton & Francisco A. Rodrigues, 2021. "The Role of (non-)Topological Features as Drivers of Systemic Risk: a machine learning approach," Working Papers Series 556, Central Bank of Brazil, Research Department.
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    More about this item

    Keywords

    Too big to fail; Systemic risk; Latin America; SIFI; Marginal expected shortfall (MES); Conditional value at risk (CoVaR);
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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