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Systemic risk spillovers in the European banking and sovereign network

Betz, Frank; Hautsch, Nikolaus; Peltonen, Tuomas A; Schienle, Melanie

We propose a framework for estimating time-varying systemic risk contributions that is applicable to a high-dimensional and interconnected financial system. Tail risk dependencies and systemic risk contributions are estimated using a penalized two-stage fixed-effects quantile approach, which explicitly links time-varying interconnectedness to systemic risk contributions. For the purposes of surveillance and regulation of financial systems, network dependencies in extreme risks are more relevant than simple (mean) correlations. Thus, the framework provides a tool for supervisors, reflecting the market’s view of tail dependences and systemic risk contributions. The model is applied to a system of 51 large European banks and 17 sovereigns during the period from 2006 through 2013, utilizing both equity and CDS prices. We provide new evidence on how banking sector fragmentation and sovereign-bank linkages evolved over the European sovereign debt crisis, and how they are reflected in estimated network statistics and systemic risk measures. Finally, our evidence provides an indication that the fragmentation of the European financial system ... mehr

Zugehörige Institution(en) am KIT Institut für Volkswirtschaftslehre (ECON)
Publikationstyp Forschungsbericht
Jahr 2016
Sprache Englisch
Identifikator DOI(KIT): 10.5445/IR/1000051810
ISSN: 2190-9806
URN: urn:nbn:de:swb:90-518107
KITopen ID: 1000051810
Verlag KIT, Karlsruhe
Umfang 40 S.
Serie Working paper series in economics ; 79
Schlagworte systemic risk contribution; tail dependence; network topology; sovereignbank linkages; Value-at-Risk
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