Advanced

Essays on Systemic Risk in European Banking

Sabzevari, Hassan LU (2016)
Abstract
This thesis makes a contribution to systemic risk literature in the European banking system. The intimate interdependence between the European banking industries and the fragile GIIPS debt market has jeopardized the banking sector in Europe. The threats of unfavourable financial conditions in European bank- ing sufficiently highlight the importance of the dissertation’s distinct focus on systemic risk measurement and on the risk drivers. The outcomes of the three included papers give support to the European authorities to enact comprehen- sive macroprudential regulation schemes.
The first paper estimates the systemic risk contributions of GIIPS-block bank- ing on 14 major banking systems in Europe. The CoVaR measure further eval- uates... (More)
This thesis makes a contribution to systemic risk literature in the European banking system. The intimate interdependence between the European banking industries and the fragile GIIPS debt market has jeopardized the banking sector in Europe. The threats of unfavourable financial conditions in European bank- ing sufficiently highlight the importance of the dissertation’s distinct focus on systemic risk measurement and on the risk drivers. The outcomes of the three included papers give support to the European authorities to enact comprehen- sive macroprudential regulation schemes.
The first paper estimates the systemic risk contributions of GIIPS-block bank- ing on 14 major banking systems in Europe. The CoVaR measure further eval- uates the magnitude of risk using two methods; quantile regression and DCC. Our results indicate a substantial spillover effect of GIIPS banking on the exam- ined banking systems. In other words, the countries’ banking sectors are in part driven by systemic risk in the GIIPS banking system. We also find supporting ev- idence of amplified spillover effects from the GIIPS-block banking sector during the financial crises.
The second paper firstly quantifies the sovereign debt spillovers based on daily returns of GIIPS and individual banks’ CDSs over the period of 2007-2015. Then, it examines banks’ financial features and financial markets’ circumstances that determine variations in the banks’ sovereign risk exposures. We find those banks that hold higher assets in times of crisis or work in markets with unfa- vorable profiles, i.e. low returns and high idiosyncratic risks tend to be further susceptible to sovereign risk. However, we do not observe that variations in the risk exposures have been driven by dissimilarities in individual fundamentals such as leverage, debt-to-cash, and market-to-book value of equity ratios.
The third paper analyzes the main determinants of systemic contagion from an individual country’s banking sector to the whole banking industry of Europe in 1999-2013. The results show that differences in systemic risk contribution are driven by a combination of balance-sheet characteristics and macroeconomic conditions such as the country-level VaR, crisis episodes, size or total asset, bi- lateral loan, market-to-book ratio, stock market returns, and industry produc- tion index (IPI).

Keywords: Systemic Risk, CoVaR, GIIPS, Quantile Regression, DCC, CDS JEL Classification: G01, G21, E43, N24, H63, F30
i (Less)
Please use this url to cite or link to this publication:
author
supervisor
opponent
  • Professor Knif, Johan, Hanken School of Economics, Finland
organization
publishing date
type
Thesis
publication status
published
subject
keywords
Systemic Risk, CoVaR, GIIPS, Quantile Regression, DCC, CDS
pages
129 pages
defense location
Holger Crafoord Centre EC3:211
defense date
2017-01-27 14:15
ISBN
978-91-7753-126-5
978-91-7753-127-2
language
English
LU publication?
yes
id
b9ec2c96-981c-4f85-91c5-176edc6fb672
date added to LUP
2016-12-13 13:26:30
date last changed
2016-12-14 13:34:36
@phdthesis{b9ec2c96-981c-4f85-91c5-176edc6fb672,
  abstract     = {This thesis makes a contribution to systemic risk literature in the European banking system. The intimate interdependence between the European banking industries and the fragile GIIPS debt market has jeopardized the banking sector in Europe. The threats of unfavourable financial conditions in European bank- ing sufficiently highlight the importance of the dissertation’s distinct focus on systemic risk measurement and on the risk drivers. The outcomes of the three included papers give support to the European authorities to enact comprehen- sive macroprudential regulation schemes.<br/>The first paper estimates the systemic risk contributions of GIIPS-block bank- ing on 14 major banking systems in Europe. The CoVaR measure further eval- uates the magnitude of risk using two methods; quantile regression and DCC. Our results indicate a substantial spillover effect of GIIPS banking on the exam- ined banking systems. In other words, the countries’ banking sectors are in part driven by systemic risk in the GIIPS banking system. We also find supporting ev- idence of amplified spillover effects from the GIIPS-block banking sector during the financial crises.<br/>The second paper firstly quantifies the sovereign debt spillovers based on daily returns of GIIPS and individual banks’ CDSs over the period of 2007-2015. Then, it examines banks’ financial features and financial markets’ circumstances that determine variations in the banks’ sovereign risk exposures. We find those banks that hold higher assets in times of crisis or work in markets with unfa- vorable profiles, i.e. low returns and high idiosyncratic risks tend to be further susceptible to sovereign risk. However, we do not observe that variations in the risk exposures have been driven by dissimilarities in individual fundamentals such as leverage, debt-to-cash, and market-to-book value of equity ratios.<br/>The third paper analyzes the main determinants of systemic contagion from an individual country’s banking sector to the whole banking industry of Europe in 1999-2013. The results show that differences in systemic risk contribution are driven by a combination of balance-sheet characteristics and macroeconomic conditions such as the country-level VaR, crisis episodes, size or total asset, bi- lateral loan, market-to-book ratio, stock market returns, and industry produc- tion index (IPI).<br/><br/>Keywords: Systemic Risk, CoVaR, GIIPS, Quantile Regression, DCC, CDS JEL Classification: G01, G21, E43, N24, H63, F30<br/>i},
  author       = {Sabzevari, Hassan},
  isbn         = {978-91-7753-126-5},
  keyword      = {Systemic Risk, CoVaR, GIIPS, Quantile Regression, DCC, CDS},
  language     = {eng},
  month        = {12},
  pages        = {129},
  school       = {Lund University},
  title        = {Essays on Systemic Risk in European Banking},
  year         = {2016},
}