Uncertainty, systemic shocks and the global banking sector: Has the crisis modified their relationship?

Abstract

We estimate the impact of equity market uncertainty and an unobservable systemic risk factor on the returns of the major banks in the global banking sector. Our estimation combines quantile regressions, structural changes, and factor models and allows us to explore the stability of systemic risk propagation among financial institutions. We find that risk propagation has remained stable over the last decade, and we report evidence indicating that equity market uncertainty is a major factor for the global banking system. Additionally, we provide a new simple tool for measuring the resilience of financial institutions to systemic shocks.

Global banking stability in the shadow of Covid-19 outbreak

“…Considerable uncertainty remains regarding the duration and magnitude of the government measures of confinement, and the extent to which they may be implemented in a similar manner across countries, and whether this will have differential cross-country implications for the banking industry ( Weill, 2009 , Kizys et al, 2016 , Uribe et al, 2017 ). Even though many lockdown measures were gradually eased during June/July, the extent of any subsequent recovery effect on banking stability will depend on the effectiveness of the policy actions taken to support the global banking industry through the downturn, and the extent to which public confidence in the industry returns.…”

Forecast the Role of GCC Financial Stress on Oil Market and GCC Financial Markets Using Convolutional Neural Networks

“…Financial stress plays a key role in determining the dynamics of share prices during crisis periods. Hence, researchers began to observe whether asymmetric dynamics appeared during turmoil periods in the financial markets to better understand the fluctuations of asset prices (Jurado et al, 2015 ; Uribe et al, 2017 ). As a matter of fact, some studies are very interested in the impact of financial crises on the link between the financial stress and oil market (Gkillas et al, 2020 ; Gupta et al, 2019 ), and gives proof of the leading role of the financial stress in financial markets.…”