A PCA Approach to Common Risk Exposures in the Chilean Banking System
This paper studies three related aspects of the Chilean banking’s systemic risk: (i) to what extent the degree of common risk exposure in the Chilean banking system has changed over the past decades, (ii) during which periods this exposure increased the most, and (iii) when this degree of commonality became a systemic concern. Additionally, it identifies systemically important financial institutions in Chile based on their contribution to the degree of common risk exposure. It finds that prior to the 2008-09 global financial crisis the degree of common risk exposure in Chile increased significantly, and that the banks that contributed the most were not necessarily the biggest ones in size, as measured by their assets share.
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