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NPL Spillovers in Europe: Credit Risk contagion mechanisms in the aftermath of the global financial crisis

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  • Giannoulakis, Michael

Abstract

This chapter investigates the interconnectedness of non-performing loans (NPLs) across 30 European economies, including the UK, using the Diebold–Yilmaz spillover index. Employing a linear VAR model of order 2 and Lanne–Nyberg variance decomposition on 12-period-ahead forecast errors over 2010Q1–2022Q2, the analysis reveals a persistently high total spillover index, indicating strong cross-country linkages in NPL dynamics. The results uncover an important asymmetry: economies that emerged from the global financial crisis in a relatively resilient position often act as net transmitters of NPL spillovers, while more vulnerable banking systems typically absorb them as receivers. This finding challenges the conventional view that fragility is the primary source of contagion, instead highlighting the role of resilient systems in propagating shocks through regional financial networks. The paper contributes to understanding the interplay between macroeconomic stability and credit risk transmission, with implications for European financial stability policy and cross-border supervision.

Suggested Citation

  • Giannoulakis, Michael, 2025. "NPL Spillovers in Europe: Credit Risk contagion mechanisms in the aftermath of the global financial crisis," Greenwich Papers in Political Economy 51103, University of Greenwich, Greenwich Political Economy Research Centre.
    • Handle: RePEc:gpe:wpaper:51103
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