Systemic Risk and the COVID Challenge in the European Banking Sector

This paper studies the systemic risk contribution of a set of large publicly traded European banks. Over a sample covering the last twenty years and three different crises, we find that all banks in our sample significantly contribute to systemic risk. Moreover, larger banks and banks with a business model more exposed to trading and financial market volatility, contribute more. In the shorter sample characterized by the COVID-19 shock, sovereign default risks significantly affected the systemic risk contribution of all banks. However, the ECB announcement of the Pandemic Emergency Purchasing Programme restored calm in the European banking sector