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WHAT KIND OF SYSTEMIC RISKS DO WE FACE IN THE EUROPEAN BANKING SECTOR? THE APPROACH OF CoVaR MEASURE

Author

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  • Renata Karkowska

    (University of Warsaw, Faculty of Management)

Abstract

We measure a systemic risk faced by European banking sectors using the CoVaR measure. We propose the conditional value-at-risk (CoVaR) for measuring a spillover risk which demonstrates the bilateral relation between the tail risks of two financial institutions. The aim of the study is to estimate the contribution systemic risk of the bank i in the analyzed banking sector of a country in conditions of its insolvency. The study included commercial banks from 8 emerging markets from Europe, which gave a total of 40 banks, traded on the public market, which provided a market valuation of the bank's capital. The conclusions are that the CoVaR seems to be a better measure for systemic risk in the banking sector than the VaR, which is more individual. And banks in developing countries in Europe do not provide significant risk for the banking sector as a whole. But it must be taken into account that some individuals that may find objectionable. Our results hence tend to a practical use of the CoVaR for supervisory purposes.

Suggested Citation

  • Renata Karkowska, 2015. "WHAT KIND OF SYSTEMIC RISKS DO WE FACE IN THE EUROPEAN BANKING SECTOR? THE APPROACH OF CoVaR MEASURE," Faculty of Management Working Paper Series 12015, University of Warsaw, Faculty of Management.
    • Handle: RePEc:sgm:fmuwwp:12015
    as

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    References listed on IDEAS

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    5. Tobias Adrian & Hyun Song Shin, 2010. "The changing nature of financial intermediation and the financial crisis of 2007-09," Staff Reports 439, Federal Reserve Bank of New York.
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    More about this item

    Keywords

    Systemic Risk; Value at Risk; Risk Spillovers; Banking Sector;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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