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Measuring the systemic importance of banks

Author

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  • Georgios Moratis

    () (Athens University of Economics and Business)

  • Plutarchos Sakellaris

    (Athens University of Economics and Business)

Abstract

We measure the systemic importance of all banks that issue publicly traded CDS contracts among the world’s biggest 150. Systemic importance is captured by the intensity of spillovers of daily CDS movements. Our new empirical tool uses Bayesian VAR to address the dimensionality problem and identifies banks that may trigger instability in the global financial system. For the period January 2008 to June 2017, we find the following: A bank’s systemic importance is not adequately captured by its size. European banks have been the main source of global systemic risk with strong interconnections to US banks. For the global system, we identify periods of increased interconnections among banks, during which systemic and idiosyncratic shocks are propagated more intensely via the network. Using principal components analysis, we identify a single dominant factor associated with fluctuations in CDS spreads. Individual banks’ exposure to this factor is related to their government’s ability to support them and to their retail orientation but not to their size.

Suggested Citation

  • Georgios Moratis & Plutarchos Sakellaris, 2017. "Measuring the systemic importance of banks," Working Papers 240, Bank of Greece.
  • Handle: RePEc:bog:wpaper:240
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    References listed on IDEAS

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    More about this item

    Keywords

    Macroprudential Policy; Systemic Risk; Financial Markets;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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