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On bank credit risk: systemic or bank-specific? Evidence from the US and UK

  • Junye Li

    ()

    (ESSEC Business School)

  • Gabriele Zinna

    ()

    (Bank of Italy)

We develop a multivariate credit risk model that accounts for joint defaults of banks and al-lows us to disentangle how much of banks' credit risk is systemic. We find that the US and UK dif-fer not only in the evolution of systemic risk, but in particular in their banks' systemic exposures. In both countries, however, systemic credit risk varies substantially, represents about half of total bank credit risk on average, and induces high risk premia. Further, the results suggest that sovereign and bank systemic risk are particularly interlinked in the UK.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 951.

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Date of creation: Feb 2014
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Handle: RePEc:bdi:wptemi:td_951_14
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