Risk spillovers and interconnectedness between systemically important institutions

Andries, Alin Marius, Ongena, Steven, Sprincean, Nicu and Tunaru, Radu (2021) Risk spillovers and interconnectedness between systemically important institutions. Journal of Financial Stability. a100963 1-59. ISSN 1572-3089

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In this paper, we gauge the degree of interconnectedness and quantify the linkages between global and other systemically important institutions, and the global financial system. We document that the two groups and the financial system become more interconnected during the global financial crisis when linkages across groups grow. In contrast, during tranquil times linkages within groups prevail. Global systemically important banks (G-SIBs) contribute most to system-wide distress but are also most exposed. There are more links coming from G-SIBs to other systemically important institutions (O-SIIs) than the other way around, confirming the role of G-SIBs as major risk transmitters in the financial system. The two groups and the global financial system tend to co-vary for periods up to 60 days Prior to their official designation as G-SIBs or O-SIIs, the prevalent news sentiment about these institutions (we measure with a textual analysis) was negative. Importantly, the systemic importance and exposure of G-SIBs and O-SIIs is perceived differently by the Financial Stability Board (FSB) and the European Banking Authority (EBA).

Item Type: Article
Keywords: systemic risk, interconnectedness, bank networks, Bayesian graphical VAR, textual analysis
Schools and Departments: University of Sussex Business School > Accounting and Finance
SWORD Depositor: Mx Elements Account
Depositing User: Mx Elements Account
Date Deposited: 13 Dec 2021 08:25
Last Modified: 13 Dec 2021 08:30
URI: http://sro.sussex.ac.uk/id/eprint/103338

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