From Sovereigns to Banks: Evidence on Cross-border Contagion (2006-2011)
This paper analyzes the evolution of the banking system sensitivity to cross-border contagion over the period of 2006-2011. The study is performed on the basis of the BIS data on crossborder exposures and the Bankscope data on Tier 1 capital of 20 banking systems (Australia, Austria, Belgium, Canada, Finland, France, Germany, Greece, India, Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Sweden, Switzerland, Turkey, the UK and the US). Since the European sovereign debt crisis took a decisive turn at the end of 2009, markets started looking at its main protagonists - so called PIIGS (Portugal, Ireland, Italy, Greece and Spain) - with a lot of anxiety. However, unexpectedly, the analysis of the data shows that a single failure among PIIGS could be absorbed by the network in 2011. Nevertheless, multiple initial failures (especially combinations including Italy and/or Spain) could be more dangerous. The simulation results reveal that the resilience of banking systems to contagion risks tends to improve over the years. The most systemically important countries are those of the US, the UK, France and Germany. Besides, a shock to the US is capable of destroying the UK banking system already in the ?rst round, whereas the UK would not lead to the failure of the US banking system even after all rounds of contagion. The results also show that the banking systems of the US, Turkey and Finland are completely immune to contagion effects. At the same time, there exist considerable risks for Switzerland and Ireland as their banking systems default also with high recovery rates.
|Date of creation:||Aug 2013|
|Date of revision:|
|Contact details of provider:|| Postal: Piazza S.Francesco,7 - 53100 Siena|
Web page: http://www.deps.unisi.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Zuzana Fungacova & Petr Jakubik, 2013.
"Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia,"
Czech Journal of Economics and Finance (Finance a uver),
Charles University Prague, Faculty of Social Sciences, vol. 63(1), pages 87-105, March.
- Zuzana Fungáèová & Petr Jakubík, 2012. "Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia," Working Papers IES 2012/04, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Feb 2012.
- Fungáčová, Zuzana & Jakubik, Petr, 2012. "Bank stress tests as an information device for emerging markets : The case of Russia," BOFIT Discussion Papers 3/2012, Bank of Finland, Institute for Economies in Transition.
- Memmel, Christoph & Sachs, Angelika & Stein, Ingrid, 2011. "Contagion at the interbank market with stochastic LGD," Discussion Paper Series 2: Banking and Financial Studies 2011,06, Deutsche Bundesbank, Research Centre.
- Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007.
"Network models and financial stability,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 31(6), pages 2033-2060, June.
- Upper, Christian, 2011. "Simulation methods to assess the danger of contagion in interbank markets," Journal of Financial Stability, Elsevier, vol. 7(3), pages 111-125, August.
- Lelyveld, Iman van & Liedorp, Franka, 2006.
"Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis,"
806, University Library of Munich, Germany.
- Iman van Lelyveld & Franka Liedorp, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
- Mistrulli, Paolo Emilio, 2011.
"Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns,"
Journal of Banking & Finance,
Elsevier, vol. 35(5), pages 1114-1127, May.
- Paolo Emilio Mistrulli, 2007. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Temi di discussione (Economic working papers) 641, Bank of Italy, Economic Research and International Relations Area.
- Garratt, Rodney & Mahadeva, Lavan & Svirydzenka, Katsiaryna, 2011. "Mapping systemic risk in the international banking network," Bank of England working papers 413, Bank of England.
- Javier A. Reyes & Camelia Minoiu, 2011. "A network analysis of global banking; 1978â€“2009," IMF Working Papers 11/74, International Monetary Fund.
- Adrian Blundell-Wignall & Patrick Slovik, 2010. "The EU Stress Test and Sovereign Debt Exposures," OECD Working Papers on Finance, Insurance and Private Pensions 4, OECD Publishing.
- Toivanen, Mervi, 2009. "Financial interlinkages and risk of contagion in the Finnish interbank market," Research Discussion Papers 6/2009, Bank of Finland.
- Iori, Giulia & Jafarey, Saqib & Padilla, Francisco G., 2006. "Systemic risk on the interbank market," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 525-542, December.
- Gai, Prasanna & Kapadia, Sujit, 2010. "Contagion in financial networks," Bank of England working papers 383, Bank of England.
- Goetz von Peter, 2007. "International banking centres: a network perspective," BIS Quarterly Review, Bank for International Settlements, December.
- Hans Degryse & Grégory Nguyen, 2007. "Interbank Exposures: An Empirical Examination of Contagion Risk in the Belgian Banking System," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 123-171, June.
- Jorge A Chan-Lau, 2010. "Balance Sheet Network Analysis of Too-Connected-to-Fail Risk in Global and Domestic Banking Systems," IMF Working Papers 10/107, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:usi:wpaper:680. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fabrizio Becatti)
If references are entirely missing, you can add them using this form.