Risk Exposures and Financial Spillovers in Tranquil and Crisis Times: Bank-Level Evidence

By Helene Poirson, Jochen M. Schmittmann

June 5, 2013

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Helene Poirson, and Jochen M. Schmittmann Risk Exposures and Financial Spillovers in Tranquil and Crisis Times: Bank-Level Evidence, (USA: International Monetary Fund, 2013) accessed December 30, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

For a sample of 83 financial institutions during 2003–2011, this paper attempts to answer three questions: first, what is the evolution of banks’ stock price exposure to country-level and global risk factors as approximated by equity indices; second, which bank-specific characteristics explain these risk exposures; third, are there clusters of banks with equity price linkages beyond market risk factors. The paper finds a rise in sensitivities to both country and global risk factors in 2011, although on average to levels still below those of the subprime crisis. The average sensitivity to European risk, specifically, has been steadily rising since 2008. Banks that are reliant on wholesale funding, have weaker capital levels and low valuations, and higher exposures to crisis countries are found to be the most vulnerable to shocks. The analysis of bank-to-bank linkages suggests that any “globalization” of the euro area crisis is likely to be channelled through U.K. and U.S. banks, with little evidence of direct spillover effects to other regions.

Subject: Banking, Capital adequacy requirements, Financial crises, Financial institutions, Financial markets, Financial regulation and supervision, Financial sector policy and analysis, Spillovers, Stock markets, Stocks

Keywords: B. bank Betas, Bank beta, Bank fundamentals, Banks, BNP Paribas, Capital adequacy requirements, Core EA bank distress, Country beta, Country market index, Equity risk, Europe, Financial crisis, Financial institutions, Financial sector, Funding condition, Global, Risk exposure, Share price, Spillover effect, Spillovers, Stock markets, Stocks, Subprime crisis, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/142
Stock No:

WPIEA2013142
ISBN:

9781484311240
ISSN:

1018-5941

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