Dynamic Conditional Systemic Risk Measures
Year: 2023 Volume: 73 Issue: 2 Pages: 106-133
Abstract: In this paper, we introduce dynamic dependence to the measurement of a number of systemic default risk based on a procedure for a consistent estimation of individual and joint default risk. Focusing on set of univariate and multivariate conditional indicators, our analysis documents a rise in banking systemic fragility in the euro area from the onset of the Subprime Crisis on, with a substantial increase around the First Greek Bailout in May 2010. Our measures also capture significant events in the euro area, such as Mario Draghi’s “whatever-it-takes” speech in mid-2012 and the Cypriot Banking Crisis of 2012-2013. The dynamic dependence versions of our measures provide a richer depiction of conditional default risk in the European banking system and in many cases show very different dynamics to their static counterparts. Our results are robust to different approaches for calculating correlations. These results have important policy implications and add to our understanding of systemic risk of European banks.
JEL classification: C16, C61, G01, G21
Keywords: banking stability, financial distress, sovereign default, tail risk, contagion
DOI: https://doi.org/10.32065/CJEF.2023.02.01
RePEc: https://ideas.repec.org/a/fau/fauart/v73y2023i2p106-133.html
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