Tail risk and systemic risk of US and Eurozone financial institutions in the wake of the global financial crisis


We evaluate multiple market-based measures for US and eurozone individual bank tail risk and bank systemic risk. We apply statistical extreme value analysis to the tails of bank equity capital losses to estimate the likelihood of individual institutions' financial distress as well as individual banks' exposure to each other (“spillover risk”) and to global shocks (“extreme” systematic risk). The estimation procedure presupposes that bank equity returns are “heavy tailed” and “tail dependent” as identifying assumption. Using both US and eurozone banks allows one to make a cross-Atlantic comparison of tail risks and systemic stability. We also assess to what extent magnitudes of tail risk and systemic risk have been altered by the global financial crisis. The results suggest that both tail risk and systemic risk in the US are higher than in the eurozone regardless of the considered sample period.

Divisions: College of Business and Social Sciences > Aston Business School
Additional Information: © 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Publication ISSN: 1873-0639
Last Modified: 29 Nov 2023 12:05
Date Deposited: 15 Nov 2018 13:29
Full Text Link: 10.1016/j.jimonfin.2015.07.003
Related URLs: https://linking ... 261560615001187 (Publisher URL)
PURE Output Type: Article
Published Date: 2015-11-01
Authors: Straetmans, Stefan
Chaudhry, Sajid M.

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