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Measuring Systemic Stress in European Banking Systems

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  • Heather D. Gibson
  • Stephen G. Hall
  • George S. Tavlas

Abstract

We construct a measure of systemic risk in selected EU banking systems using an indirect measure of the system covariance which is also time-varying. We proceed to examine to what extent the resulting measures of systemic stress provide a convincing narrative of events during the period January 2000 to March 2016. The results provide evidence of: (i) rising stress prior to the outbreak of the international financial crisis in 2007/08 in countries with banks exposed to toxic assets; (ii) stress associated with the euro area sovereign debt crisis from 2009/10; and (iii) continued concerns from 2013 out the need for euro area banks to clean up their balance sheets and raise new capital at a time of sluggish profitability.

Suggested Citation

  • Heather D. Gibson & Stephen G. Hall & George S. Tavlas, 2016. "Measuring Systemic Stress in European Banking Systems," Discussion Papers in Economics 16/19, Division of Economics, School of Business, University of Leicester.
  • Handle: RePEc:lec:leecon:16/19
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    File URL: https://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp16-19.pdf
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    References listed on IDEAS

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    Cited by:

    1. Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2017. "A suggestion for constructing a large time-varying conditional covariance matrix," Economics Letters, Elsevier, vol. 156(C), pages 110-113.

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    Keywords

    euro area financial crisis; systemic stress; financial instability; European banks;
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