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Measuring systemic vulnerability in European banking systems

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  • Gibson, Heather D.
  • Hall, Stephen G.
  • Tavlas, George S.

Abstract

We construct a measure of systemic vulnerability in selected EU banking systems using an indirect, time-varying measure of the system covariance. Systemic vulnerability indicates the extent to which a banking system as a whole is sensitive to a negative shock. We proceed to examine to what extent the resulting measures of systemic vulnerability provide a convincing narrative of events during the period January 2000 to April 2016. The results provide evidence of: (i) rising vulnerability prior to the outbreak of the international financial crisis in 2007/08 in countries with banks exposed to toxic assets; (ii) vulnerability associated with the euro area sovereign debt crisis from 2009/10; and (iii) continued concerns from 2013 onwards regarding the need for euro area banks to improve their balance sheets and raise new capital at a time of sluggish profitability.

Suggested Citation

  • Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2018. "Measuring systemic vulnerability in European banking systems," Journal of Financial Stability, Elsevier, vol. 36(C), pages 279-292.
    • Handle: RePEc:eee:finsta:v:36:y:2018:i:c:p:279-292
    DOI: 10.1016/j.jfs.2018.03.004
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    More about this item

    Keywords

    Euro area financial crisis; Systemic vulnerability; Financial instability; European banks;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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