Banking System Stability: A Cross-Atlantic Perspective

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in BANKING SYSTEM STABILITY A CROSS-ATLANTIC PERSPECTIVE by Philipp Hartmann, Stefan Straetmans and Casper de VriesIn 2005 all ECB publications will feature a motif taken from the €50 banknote. WO R K I N G PA P E R S E R I E S N O. 5 2 7 / S E P T E M B E R 2 0 0 5This paper can be downloaded without charge from http://www.ecb.int or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=804465. BANKING SYSTEM STABILITY A CROSS-ATLANTIC PERSPECTIVE C O N T E N T S Abstract 4Non-technical summary 5

Tail risk and systemic risk of US and Eurozone financial institutions in the wake of the global financial crisis

“…Thus, the presumption that bank stocks literature on theoretical and empirical financial contagion. Several definitions of bank "contagion" co-exist in this literature but Hartmann et al (2006) summarize five identification criteria: (i) bad news about one financial institution adversely affects other financial institutions or a decline in an asset price leads to declines in other asset prices ; (ii) the interdependence between asset price declines during stress periods differs from those observed in normal times (regular "interdependence"); (iii) the co-movements between bank stocks are in excess of what can be explained by economic fundamentals; (iv) the events constituting contagion are negative "extremes", such as bank failures or bank equity capital meltdowns, so that they correspond to crisis situations; (v) bank stock co-movements are the result of propagations over time rather than being caused by the simultaneous effects of common shocks. Most empirical strategies to identify contagion only reflect the first criterion (i) and widely differ on the other points.…”

“…This paper partly builds on the statistical extreme value (EVT) approach followed by e.g. Hartmann et al (2006) towards identifying systemic risk. 6 In line with the existing empirical systemic risk literature reviewed above which distinguishes between "bank contagion" and "aggregate macro shocks" as different forms of bank instability, we distinguish conditional "co-crash" indicators between bank equity returns (to identify "spillover" or "contagion" risk) from crash probabilities of bank stock returns conditional on aggregate shocks (to identify "extreme systematic risk" or "tail- 0 ").…”

Tail Dependence for Heavy-Tailed Scale Mixtures of Multivariate Distributions

“…Thus, the extremal dependence parameter provides a lower bound for orthant tail dependence parameters. The multivariate tail dependence parameters τ J 's have been used in [9] to analyze the contagion risk in banking systems, and the extremal dependence parameter γ in the bivariate case has been used in [5] to analyze the extremal dependence in financial return data. Definition 1.1 implies that the tail dependence parameters of a distribution can be derived directly from its copula, and this has been done for the bivariate case [11,4].…”

Systemic Risk Diagnostics: Coincident Indicators and Early Warning Signals

“…Hartmann et al (2005) and Segoviano and Goodhart (2009). Naturally, a high expected number of financial defaults indicates adverse financial conditions.…”