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An Inquiry into Banking Portfolios and Financial Stability Surrounding "The Great Recession"

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  • Garita, Gus

Abstract

By utilizing the extreme dependence structure and the conditional probability of joint failure (CPJF) between banks, this paper characterizes a risk-stability index (RSI) that quantifies (i) common distress of banks, (ii) distress between specific banks, and (iii) distress to a portfolio related to a specific bank. The results show that financial stability is a continuum; that the Korean and U.S. banking systems seem more prone to systemic risk; and that Asian banks experience the most persistence of distress. Furthermore, a panel VAR indicates that "leaning against the wind" reduces the instability of a financial system.

Suggested Citation

  • Garita, Gus, 2010. "An Inquiry into Banking Portfolios and Financial Stability Surrounding "The Great Recession"," MPRA Paper 25996, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:25996
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    References listed on IDEAS

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    More about this item

    Keywords

    Conditional probability of joint failure; contagion; dependence structure; distress; multivariate extreme value theory; panel VAR; persistence; risk.;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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