Prague Economic Papers 2020, 29(6):649-671 | DOI: 10.18267/j.pep.756
Assessing the Systemic Risk Between American and European Financial Systems
- a Kocaeli University, Department of Economics, Koaceli, Turkey
- b İstanbul Commerce University, Banking and Finance Department, Istanbul, Turkey
- c WSB University, Faculty of Applied Sciences, Dabrowa Gornicza, Poland
The present study focuses on the analysis of systemic risk in the American and European financial systems for the period from 20 August 2004 to 28 February 2014. The global crisis in 2007 has brought attention to the urgent need to understand the systemic risk issues and the stability of financial systems along with their actors. To assess systemic risk, Adrian and Brunnermeier (2011) advocated the use of conditional value-at-risk (CoVaR) methodology in integrating quantile regression. Instead of the value-at-risk (VaR), which is unable to detect systemic risk, we seek to use the CoVaR methodology to calculate the systemic risk levels of the United States and European markets. In the light of related findings, we conclude that the insurance sector contributes most to the systemic risk in the USA, while in the Eurozone, it is the financial services sector that is highly interconnected with systemic risk.
Keywords: Systemic risk, financial regulation and management, value-at-risk, CoVaR, quantile regression
JEL classification: E50, E51, G20, H12
Received: September 5, 2019; Revised: May 8, 2020; Accepted: June 18, 2020; Prepublished online: September 9, 2020; Published: November 27, 2020 Show citation
References
- Adrian, T., Moench, E., Shin, H. S. (2008). Liquidity, Monetary Policy, and Financial Cycles. Current Issues in Economics and Finance, 14(1).
Go to original source...
- Barr, M. S., Jackson, H. E., Tahyar, M. E. (2016). Financial Regulation: Law and Policy, Chapter 1.1-Finance Today. U of Michigan Law & Econ Research Paper No. 16-014.
- Barr, M. S., Jackson, H. E., Tahyar, M. E. (2016). Financial Regulation Law and Policy. Foundation Press, pp. 691-719. ISBN 978-1634592956.
- Basel Committee on Banking Supervision (BCBS) (2011). Global Systematically Important Banks: Assessment Methodology and the Additional Loss Absorbency Requirement.
- Basel Committee on Banking Supervision (BCBS) (2017). Basel III Transitional Arrangements 2017-2027.
- Basel Committee on Banking Supervision (BCBS) (2020). The Basel Framework. Basel: Bank for International Settlements.
- Baur, D. G. (2012). Financial Contagion and the Real Economy. Journal of Banking & Finance, 36(10), 2680-2692, https://doi.org/10.1016/j.jbankfin.2011.05.019Benli, V. F., Mastouri, S. (x). Evaluation of Systemic Risk between American and European Financial Systems. book of, 40.
Go to original source...
- Bernal, O., Gnabo, J. Y., Guilmin, G. (2014). Assessing the Contribution of Banks, Insurance and other Financial Services to Systemic Risk. Journal of Banking & Finance, 47, 270-287, https://doi.org/10.1016/j.jbankfin.2014.05.030
Go to original source...
- Bilger, M. (2016). Finalisation de Bâle III-Bâle IV : les termes de l'accord à la loupe, Revue Banque N°815.
- Borio, C., Drehmann, M., Tsatsaronis, K. (2014). Stress-testing Macro Stress Testing: Does it Live up to Expectations? Journal of Financial Stability, 12, 3-15, https://doi.org/10.1016/j.jfs.2013.06.001
Go to original source...
- Castro, C., Ferrari, S. (2014). Measuring and Testing for the Systemically Important Financial Institutions. Journal of Empirical Finance, 25, 1-14, https://doi.org/10.1016/j.jempfin.2013.10.009
Go to original source...
- Deloitte-Emea Centre for Regulatory Strategy (2013). Addressing the Risks posed by Systemically Important Banks, The End of too Big to Fail? London: Deloitte, p. 13.
- Dowd, K. (2005). Measuring Market Risk. John Wiley & Sons.
Go to original source...
- Duffie, D. (2010). How Big Banks Fail and What to Do about It. Princeton University Press. Available at: https://web.stanford.edu/~duffie/DuffieDealersMarch10.pdf
- Duffie, D. (2011). How Big Banks Fail, And What to Do about It. Princeton, New Jersey: Princeton University Press. ISBN 9780691148854.
Go to original source...
- Freixas, X., Laeven, L., Peydro, J. L. (2015). Systemic Risk, Crisis, and Macroprudential Regulation. Cambridge, MA: MIT Press. ISBN: 9780262028691
Go to original source...
- Gauthier, C., Lehar, A., Souissi, M. (2012). Macroprudential Capital Requirements and Systemic Risk. Journal of Financial Intermediation, 21(4), 594-618, https://doi.org/10.1016/j.jfi.2012.01.005
Go to original source...
- Jacob, H. (2017). Bâle IV : Vers Une Révision De L'exigence De Fonds Propres, Formation Banque Finance, l'AFGES. Available at: http://www.afges.com/bale-iv-vers-revision-de-lexigence-de-fonds-propres/
- Mishkin, F. (2008). Systemic Risk and the International Lender of Last Resort. BIS Review, 109, 1-7.
- Racicot, F. É., Théoret, R. (2006). La Value-at-Risk: Modèles de la VaR, simulations en Visual Basic (Excel) et autres mesures récentes du risque de marché. No. UQO-DSA-wp022006). Département des sciences administratives, UQO. Available at: https://pdfs.semanticscholar.org/39a1/390056c844394f2061c6ee71bb69c3709bf6.pdf?_ga=2.252117001.1422950398.1594630784-2076459301.1594630784
- Roengpitya, R., Rungcharoenkitkul, P. (2011). Measuring Systemic Risk and Financial Linkages in the Thai Banking System. Systemic Risk, Basel III, Financial Stability and Regulation, https://doi.org/10.2139/ssrn.1773208
Go to original source...
- Schwaab, B., Lucas, A., Koopman, S. J. (2011). Systemic Risk Diagnostics: Coincident Indicators and Early Warning Signals, https://doi.org/10.2139/ssrn.1773524
Go to original source...
- Staff of the IMF and the BIS, and the SFSB (2009). Guidance to Assess the Systemic Importance of Financial Institutions, Markets and Instruments: Initial Considerations. Report to the G-20 Finance Ministers and Central Bank Governors, 6-9. Available at: https://www.imf.org/external/np/g20/pdf/100109.pdf
This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.