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

Author

Listed:
  • Junye Li

    () (ESSEC Business School)

  • Gabriele Zinna

    () (Bank of Italy)

Abstract

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.

Suggested Citation

  • Junye Li & Gabriele Zinna, 2014. "On bank credit risk: systemic or bank-specific? Evidence from the US and UK," Temi di discussione (Economic working papers) 951, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_951_14
    as

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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Junye Li & Gabriele Zinna, 2014. "How much of bank credit risk is sovereign risk? Evidence from the eurozone," Temi di discussione (Economic working papers) 990, Bank of Italy, Economic Research and International Relations Area.
    2. Mario Cerrato & John Crosby & Minjoo Kim & Yang Zhao, 2015. "Correlated Defaults of UK Banks: Dynamics and Asymmetries," Working Papers 2015_24, Business School - Economics, University of Glasgow.
    3. Michele Bonollo & Irene Crimaldi & Andrea Flori & Fabio Pammolli & Massimo Riccaboni, 2014. "Systemic importance of financial institutions: from a global to a local perspective? A network theory approach," Working Papers 9/2014, IMT Institute for Advanced Studies Lucca, revised Sep 2014.
    4. Michele Bonollo & Irene Crimaldi & Andrea Flori & Fabio Pammolli & Massimo Riccaboni, 2014. "Systemic importance of financial institutions: regulations, research, open issues, proposals," Working Papers 2/2014, IMT Institute for Advanced Studies Lucca, revised Mar 2014.
    5. Gabriele Zinna, 2014. "Price pressures in the UK index-linked market: an empirical investigation," Temi di discussione (Economic working papers) 968, Bank of Italy, Economic Research and International Relations Area.
    6. Sara Cecchetti, 2017. "A quantitative analysis of risk premia in the corporate bond market," Temi di discussione (Economic working papers) 1141, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Keywords

    systemic bank credit Risk; credit default swaps; distress risk premia; Bayesian estimation;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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