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Ailing Mothers, Healthy Daughters? Contagion in the Central European Banking Sector

Author

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  • Tomas Fiala

    (Tilburg University and Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

  • Tomas Havranek

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic and Czech National Bank)

Abstract

Foreign-dominated banking sectors, such as those prevalent in Central and Eastern Europe, are susceptible to two major sources of systemic risk: (i) linkages between local banks, and (ii) linkages between a foreign par- ent bank and its local subsidiary. Using a nonparametric method based on extreme value theory, which accounts for fat-tail shocks, we analyze interde- pendencies in downward risk in the banking sectors of the Czech Republic, Hungary, Poland, and Slovakia during 1994–2013. In contrast to the pre- sumptions of the current regulatory policy of these countries, we find that the risk of contagion from a foreign parent bank to its local subsidiary is substantially smaller than the risk between two local banks.

Suggested Citation

  • Tomas Fiala & Tomas Havranek, 2014. "Ailing Mothers, Healthy Daughters? Contagion in the Central European Banking Sector," Working Papers IES 2014/10, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2014.
  • Handle: RePEc:fau:wpaper:wp2014_10
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    References listed on IDEAS

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    More about this item

    Keywords

    systemic risk; extreme value theory; financial stability; Central Eastern Europe; banking; parent-subsidiary relationship;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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