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Systemic Risk in Europe

Author

Listed:
  • Robert F. Engle

    (New York University, New York University (NYU), and National Bureau of Economic Research (NBER))

  • Eric Jondeau

    (University of Lausanne and Swiss Finance Institute)

  • Michael Rockinger

    (University of Lausanne, Centre for Economic Policy Research (CEPR), and Swiss Finance Institute)

Abstract

Systemic risk may be defined as the propensity of a financial institution to be undercapitalized when the financial system as a whole is undercapitalized. In this paper, we investigate the case of non-U.S. institutions, with several factors explaining the dynamics of financial firms returns and with asynchronicity of time zones. We apply this methodology to the 196 largest European financial firms and estimate their systemic risk over the 2000-2012 period. We find that, for certain countries, the cost for the taxpayer to rescue the riskiest domestic banks is so high that some banks might be considered too big to be saved.

Suggested Citation

  • Robert F. Engle & Eric Jondeau & Michael Rockinger, 2012. "Systemic Risk in Europe," Swiss Finance Institute Research Paper Series 12-45, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1245
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    File URL: http://ssrn.com/abstract=2192536
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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