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Dynamic comovement among banks, systemic risk, and the macroeconomy

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  • Kapinos, Pavel
  • Kishor, N. Kundan
  • Ma, Jun

Abstract

This paper develops a new measure of comovement in the banking sector that takes into account the dynamic nature of interlinkages in the return on assets (ROA) and net chargeoffs (NCO) among different bank holding corporations by using a dynamic factor model with time-varying parameters and stochastic volatility. We find that the degree of comovement in ROA and NCO peaked during the 2008–2009 financial crisis, suggesting a significant increase in sector-wide stress. Using the least absolute shrinkage and selection operator (LASSO) methodology, we show that comovement and risk measures derived from our approach perform well when compared to other widely used measures of systemic risk in explaining real economic activity.

Suggested Citation

  • Kapinos, Pavel & Kishor, N. Kundan & Ma, Jun, 2022. "Dynamic comovement among banks, systemic risk, and the macroeconomy," Journal of Banking & Finance, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:jbfina:v:138:y:2022:i:c:s0378426620301606
    DOI: 10.1016/j.jbankfin.2020.105894
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    Cited by:

    1. Berrospide, Jose M., 2022. "IFABS 2017: Towards an Integrated View of Financial Regulation: Key Lessons from the Crisis and Future Challenges," Journal of Banking & Finance, Elsevier, vol. 138(C).
    2. Pavel S. Kapinos, 2021. "Monetary policy news and systemic risk at the zero lower bound," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 4932-4945, October.

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    More about this item

    Keywords

    Business cycles; Systemic risk; Banks; Dynamic factor models; Return on assets; Chargeoffs;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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