Garita, Gus (2010): An Inquiry into Banking Portfolios and Financial Stability Surrounding "The Great Recession".
Download (1MB) | Preview
By utilizing the extreme dependence structure and the conditional probability of joint failure (CPJF) between banks, this paper characterizes a risk-stability index (RSI) that quantifies (i) common distress of banks, (ii) distress between specific banks, and (iii) distress to a portfolio related to a specific bank. The results show that financial stability is a continuum; that the Korean and U.S. banking systems seem more prone to systemic risk; and that Asian banks experience the most persistence of distress. Furthermore, a panel VAR indicates that "leaning against the wind" reduces the instability of a financial system.
|Item Type:||MPRA Paper|
|Original Title:||An Inquiry into Banking Portfolios and Financial Stability Surrounding "The Great Recession"|
|Keywords:||Conditional probability of joint failure; contagion; dependence structure; distress; multivariate extreme value theory; panel VAR; persistence; risk.|
|Subjects:||C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||Gus Garita|
|Date Deposited:||23. Oct 2010 13:42|
|Last Modified:||23. Feb 2015 19:35|
Allen, F., Carletti, E., and Babus, A. (2009). Financial Crises: Theory and Evidence. Annual Review of Financial Economics, 1(1).
Allen, F. and Gale, D. (2000). Financial Contagion. Journal of Political Economy, 108:1-33.
Arrellano, M. and Bover, O. (1995). Another Look at the Instrumental Variable Estimation of Error Component Models. Journal of Econometrics, 68.
Aspachs, O., Goodhart, C., Tsomocos, D., and Zicchino, L. (2007). Towards a Measure of Financial Fragility. Annals of Finance, 3.
Boyer, B., Gibson, M., and Loretan, M. (1997). Pitfalls in Tests for Changes in Correlation. International Finance Discussion Paper No 5-97, Board of Governors of the Federal Reserve System.
Das, S. and Hanouma, P. (2006). Credit Default Swap Spreads. Journal of Investment Management, 4(3):93-105.
Dasgupta, A. (2004). Financial Contagion Through Capital Connections: A Model of the Origin and Spread of Bank Panics. Journal of the European Economic Association, 2(6):1049-1084.
de Bandt, O. and Hartmann, P. (2000). Systemic Risk: A Survey. European Central Bank Working Paper Series No.35.
de Haan, L. and Ferreira, A. (2006). Extreme Value Theory: An Introduction. Springer Series in Operations Research and Financial Engineering. Springer, New York, NY, USA.
de Vries, C. (2005). The Simple Economics of Bank Fragility. Journal of Banking and Finance, 29:803-825.
Diamond, D. and Dybvig, P. (1983). Bank Runs, Deposit Insurance, and Liquidity. Journal of Political Economy, 91(5):401-419.
Embrechts, P., de Haan, L., and Huang, X. (2000). Modelling Multivariate Extremes. In Embrechts, P., editor, Extremes and Integrated Risk Management, pages 59-67. Risk Books.
Embrechts, P., Kluppelberg, C., and Mikosh, T. (1997). Modeling Extremal Events. Springer-Verlag, Berlin.
Forbes, K. and Rigobon, R. (2002). No Contagion, Only Interdependence: Measuring Stock Market Comovements. The Journal of Finance, 57(5):2223-2261.
Garita, G. and Zhou, C. (2009). Can Open Capital Markets Help Avoid Currency Crises? De Nederlansche Bank Working Paper 205.
Goodhart, C., Sunirand, P., and Tsomocos, D. (2005). A Risk Assessment Model for Banks. Annals of Finance, 1:197-224.
Goodhart, C., Sunirand, P., and Tsomocos, D. (2006). A Model to Analyze Financial Fragility. Economic Theory, 27:107-142.
Hamilton, J. (1994). Time Series Analysis. Princeton University Press.
Hartman, P., Straetmans, S., and de Vries, C. (2004). Asset Market Linkages in Crisis Periods. Review of Economics and Statistics, 86:313-326.
Hartmann, P., Straetmans, S., and de Vries, C. (2007). Banking System Stability: A Cross-Atlantic Perspective. In Carey, M. and Stulz, R., editors, The Risks of Financial Institutions, pages 133-192. National Bureau of Economic Research, Inc.
Hill, B. (1975). A Simple General Approach to Inference about the Tail of a Distribution. The Annals of Statistics, 3:1163-1173.
Holtz-Eakin, D., Newey, W., and Rosen, H. (1988). Estimating Vector Autoregressions with Panel Data. Econometrica, 56(6):1371-1395.
Houben, A., Kakes, J., and Schinasi, G. (2004). Toward a Framework for Safeguarding Financial Stability. IMF Working Paper WP/04/101.
Huang, X. (1992). Statistics of Bivariate Extreme Values. PhD thesis, Erasmus University Rotterdam - Tinbergen Institute.
Hull, J., Predescu, M., and White, A. (2004). The Relationship Between Credit Default Swap Spreads, Bond Yields, and Credit Rating Announcements. Journal of Banking and Finance, 28(11):2789-2811.
Lehar, A. (2005). Measuring Systemic Risk: A Risk Management Approach. Journal of Banking and Finance, 29:2577-2603.
Love, I. and Ziccino, L. (2006). Financial Development and Dynamic Investment Behaviour: Evidence from Panel VAR. The Quarterly Review of Economics and Finance, 46:190-210.
McKinsey Global Institute (2009). Global Capital Markets: Entering a New Era. Technical report, Mckinsey Global Institute.
Merton, R. (1974). On the Pricing of Corporate Debt: The Risk Structure if Interest Rates. Journal of Finance, 29(2):449-470.
Segoviano, M. and Goodhart, C. (2009). Banking Stability Measures. IMF Working Paper 09/04.
Zhou, C. (2009). Are Banks Too Big To Fail? De Nederlandsche Bank Working Paper No. 232.