As international financial integration gathers pace, interconnectivity has increased tremendously among financial institutions, financial markets and financial systems, a phenomenon to which the recent global financial crisis perhaps provided the best testimony. The interconnectivity among...

We examine the evolution of credit risk co-dependence in the banking sectors of over 65 countries. We find that there has been a significant increase in default risk co-dependence over the 3-year period leading up to the financial crisis. We also find that countries that are more integrated with...

The aim of this paper is to cast light on possible influences of current account imbalances on the escalation of systemic risk which hit the Eurozone. The hypothesis, which was set up by examining empirical evidence, points to heterogeneity across the macroeconomic conditions prevailing in...

Systemic risk is modeled as the endogenously chosen correlation of returns on assets held by banks. The limited liability of banks and the presence of a negative externality of one bank’s failure on the health of other banks give rise to a systemic risk-shifting incentive where all banks...

Deposit insurance is widely offered in a number of countries as part of a financial system safety net to promote stability. An unintended consequence of deposit insurance is the reduction in the incentive of depositors to monitor banks which lead to excessive risk-taking. We examine the relation...

We analyze banks' systemic risk taking in a simple dynamic general equilibrium model. Banks collect funds from savers and make loans to firms. Banks are owned by risk-neutral bankers who provide the equity needed to comply with capital requirements. Bankers decide their (unobservable) exposure...

In this study, we investigate the extreme loss tail dependence between stock returns of large US depository institutions. We find that stock returns exhibit strong loss dependence even in their limiting joint extremes. Motivated by this result, we derive extremal dependence-based systemic risk...

Systemic risk among the network of international banking groups arises when financial stress threatens to crisscross many national boundaries and expose imperfect international coordination. To assess this risk, we consider three decades of data on the cross-border interbank market. We use...

When banks choose similar investment strategies the financial system becomes vulnerable to common shocks. We model a simple financial system in which banks decide about their investment strategy based on a private belief about the state of the world and a social belief formed from observing the...