Arbeitspapier

Network linkages to predict bank distress

Building on the literature on systemic risk and financial contagion, the paper introduces estimated network linkages into an early-warning model to predict bank distress among European banks. We use multivariate extreme value theory to estimate equity-based tail-dependence networks, whose links proxy for the markets' view of bank interconnectedness in case of elevated financial stress. The paper finds that early warning models including estimated tail dependencies consistently outperform bank-specific benchmark models with- out networks. The results are robust to variation in model specification and also hold in relation to simpler benchmarks of contagion. Generally, this paper gives direct support for measures of interconnectedness in early-warning models, and moves toward a unified representation of cyclical and cross-sectional dimensions of systemic risk.

ISBN
978-92-899-1641-7
Language
Englisch

Bibliographic citation
Series: ECB Working Paper ; No. 1828

Classification
Wirtschaft
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Bankruptcy; Liquidation
Quantitative Policy Modeling
Network Formation and Analysis: Theory
Subject
bank distress
bank networks
systemic risk

Event
Geistige Schöpfung
(who)
Peltonen, Tuomas A.
Sarlin, Peter
Piloiu, Andreea
Event
Veröffentlichung
(who)
European Central Bank (ECB)
(where)
Frankfurt a. M.
(when)
2015

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Peltonen, Tuomas A.
  • Sarlin, Peter
  • Piloiu, Andreea
  • European Central Bank (ECB)

Time of origin

  • 2015

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