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Similarity and Clustering of Banks: Application to the Credit Exposures of the Czech Banking Sector

Author

Listed:
  • Josef Brechler
  • Vaclav Hausenblas
  • Zlatuse Komarkova
  • Miroslav Plasil

Abstract

After the recent events in the global financial system there has been significant progress in the literature focusing on the sources of systemic importance of financial institutions. However, the concept of systemic importance is in practice often simplified to the problem of size and contagion due to interbank market interconnectedness. Against this backdrop, we explore additional features of systemic importance stemming from similarities between bank asset portfolios and investigate whether they can contribute to the build-up of systemic risks. We propose a set of descriptive methods to address this aspect empirically in the context of the Czech banking system. Our main findings suggest that the overall measure of the portfolio similarity of individual banks is relatively stable over time and is driven mainly by large and well-established banks. However, we identified several clusters of very similar banks whose market share is small individually but which could become systemically important when considered as a group. After taking into account the credit risk characteristics of portfolios we conclude that the importance of these clusters is even higher.

Suggested Citation

  • Josef Brechler & Vaclav Hausenblas & Zlatuse Komarkova & Miroslav Plasil, 2014. "Similarity and Clustering of Banks: Application to the Credit Exposures of the Czech Banking Sector," Research and Policy Notes 2014/04, Czech National Bank.
  • Handle: RePEc:cnb:rpnrpn:2014/04
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    References listed on IDEAS

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    Keywords

    Contagion; correlation; financial stability; systemic risk; too-many-to-fail;

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;

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