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Banking System Stability. A Cross-Atlantic Perspective

In: The Risks of Financial Institutions

  • Philipp Hartmann
  • Stefan Straetmans
  • Casper de Vries

This paper derives indicators of the severity and structure of banking system risk from asymptotic interdependencies between banks’ equity prices. We use new tools available from multivariate extreme value theory to estimate individual banks’ exposure to each other (“contagion risk”) and to systematic risk. By applying structural break tests to those measures we study whether capital markets indicate changes in the importance of systemic risk over time. Using data for the United States and the euro area, we can also compare banking system stability between the two largest economies in the world. For Europe we assess the relative importance of cross-border bank spillovers as compared to domestic bank spillovers. The results suggest, inter alia, that systemic risk in the US is higher than in the euro area, mainly as cross-border risks are still relatively mild in Europe. On both sides of the Atlantic systemic risk has increased during the 1990s. JEL Classification: C49, F36, G21

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This chapter was published in:
  • Mark Carey & René M. Stulz, 2007. "The Risks of Financial Institutions," NBER Books, National Bureau of Economic Research, Inc, number care06-1, July.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 9609.
    Handle: RePEc:nbr:nberch:9609
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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