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Interconnectedness and Systemic Risk

In: Credit Default Swaps

Author

Listed:
  • Christopher L. Culp

    (Johns Hopkins University)

  • Andria van der Merwe

    (Johns Hopkins University)

  • Bettina J. Stärkle

    (Compass Lexecon)

Abstract

The empirical literature regarding financial institution interconnectedness and potential systemic risk has burgeoned in the last decade. Broad conclusions from this research pertaining to credit default swaps (“CDSs”) include the following: (i) Single-name CDSs on corporate, banking, and sovereign reference entities are a source of interconnectedness and contain information that may be valuable to policy makers in measuring potential systemic risk, but there is a dearth of empirical evidence to indicate that single-name CDSs are systemically destabilizing; (ii) single-name sovereign CDSs are transmission mechanisms for economic shocks but not generally a cause of those shocks; and (iii) a “sovereign-bank” loop integrates the financial condition of the banking sector with sovereign credit risks.

Suggested Citation

  • Christopher L. Culp & Andria van der Merwe & Bettina J. Stärkle, 2018. "Interconnectedness and Systemic Risk," Palgrave Studies in Risk and Insurance, in: Credit Default Swaps, chapter 0, pages 249-270, Palgrave Macmillan.
    • Handle: RePEc:pal:psircp:978-3-319-93076-3_12
    DOI: 10.1007/978-3-319-93076-3_12
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