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Is the Central and Eastern European Banking Systems Stable? Evidence from the Recent Financial Crisis

In: Challenges to Financial Stability – Perspective, Models and Policies,Volume I A Framework for Modeling Systemic Risk Drivers of Different Markets

Listed author(s):
  • Renata KARKOWSKA

    ()

    (University of Warsaw, Faculty of Management, Poland)

Systemic risk is a very important but very complex notion in banking and how to measure it adequately is challenging. We introduce a new framework for measuring systemic risk by using a risk-adjusted balance sheet approach. The measure models credit risk of banks as a put option on bank assets, a tradition that originated with Merton model. We conceive of an individual bank's systemic risk as its contribution to the potential sector-wide net. In this regard, the analysis of public commercial banks operating in 7 countries from Central and Eastern Europe, show potential risk which could threaten all the financial system. The chapter shows how risk management tools can be applied in new ways to measure and analyze systemic risk in European banking system. The research results are a systemic risk map for the CEE banking systems. The study finds also instability of systemic risk determinants.

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File URL: http://www.asers.eu/asers_files/books/CFS_Volume%20I_short%20version.pdf
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This chapter was published in:
  • Renata Karkowska (ed.), 2014. "Challenges to Financial Stability – Perspective, Models and Policies," Challenges to Financial Stability – Perspective, Models and Policies, ASERS Publishing, volume 1, number v1, June.
  • This item is provided by ASERS Publishing in its series Chapters of Challenges to Financial Stability – Perspective, Models and Policies book with number v1-04.
    Handle: RePEc:srs:cfchap:v1-04
    Contact details of provider: Web page: http://www.asers.eu/asers-publishing/collections.html#fc

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    1. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    2. Pesaran, M. Hashem & Schuermann, Til & Treutler, Bjorn-Jakob & Weiner, Scott M., 2006. "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1211-1261, August.
    3. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    4. Gianni De Nicolo & Abu M. Jalal & John H. Boyd, 2006. "Bank Risk-Taking and Competition Revisited; New Theory and New Evidence," IMF Working Papers 06/297, International Monetary Fund.
    5. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
    6. García-Herrero, Alicia & Gavilá, Sergio & Santabárbara, Daniel, 2009. "What explains the low profitability of Chinese banks?," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2080-2092, November.
    7. Dale F. Gray & Carlos J. García & Leonardo Luna & Jorge E. Restrepo, 2011. "Incorporating Financial Sector Risk Into Monetary Policy Models: Application to Chile," Central Banking, Analysis, and Economic Policies Book Series,in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 6, pages 159-197 Central Bank of Chile.
    8. Monica Billio & Mila Getmansky & Andrew W. Lo & Loriana Pelizzon, 2010. "Econometric Measures of Systemic Risk in the Finance and Insurance Sectors," NBER Chapters,in: Market Institutions and Financial Market Risk National Bureau of Economic Research, Inc.
    9. Albertazzi, Ugo & Gambacorta, Leonardo, 2009. "Bank profitability and the business cycle," Journal of Financial Stability, Elsevier, vol. 5(4), pages 393-409, December.
    10. Allen Berger & Leora Klapper & Rima Turk-Ariss, 2009. "Bank Competition and Financial Stability," Journal of Financial Services Research, Springer;Western Finance Association, vol. 35(2), pages 99-118, April.
    11. Renzo G Avesani & Jing Li & Antonio Garcia Pascual, 2006. "A New Risk Indicator and Stress Testing Tool; A Multifactor Nth-to-Default CDS Basket," IMF Working Papers 06/105, International Monetary Fund.
    12. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    13. Karkowska Renata, 2012. "Measuring Systemic Risk in the Polish Banking System by Means of the Risk-Based Balance Sheets Method," Folia Oeconomica Stetinensia, De Gruyter Open, vol. 12(2), pages 7-18, December.
    14. Lehar, Alfred, 2005. "Measuring systemic risk: A risk management approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2577-2603, October.
    15. Jorge A Chan-Lau & Toni Gravelle, 2005. "The END; A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability," IMF Working Papers 05/231, International Monetary Fund.
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