Network Linkages to Predict Bank Distress
Author | : |
Publisher | : |
Total Pages | : 35 |
Release | : 2015 |
ISBN-10 | : 9289916419 |
ISBN-13 | : 9789289916417 |
Rating | : 4/5 (417 Downloads) |
Download or read book Network Linkages to Predict Bank Distress written by and published by . This book was released on 2015 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Building on the literature on systemic risk and financial contagion, the pa- per introduces estimated network linkages into an early-warning model to predict bank distress among European banks. We use multivariate extreme value theory to estimate equity-based tail-dependence networks, whose links proxy for the markets' view of bank interconnectedness in case of elevated financial stress. The paper finds that early warning models including estimated tail dependencies consistently outperform bank-specific benchmark models with- out networks. The results are robust to variation in model specification and also hold in relation to simpler benchmarks of contagion. Generally, this paper gives direct support for measures of interconnectedness in early-warning models, and moves toward a unified representation of cyclical and cross-sectional dimensions of systemic risk.