Drivers of Systemic Risk: Do National and European Perspectives Differ?

Mitigating the negative externalities that systemic risk can create for the financial system is the goal of macroprudential supervision. In Europe, macroprudential supervision is conducted both, at the national and at the European level. In principle, national regulators are responsible for macroprudential policies. Since the establishment of the Banking Union in 2014, the largest banks in the Euro Area are under the direct supervision of the European Central Bank (ECB). In this capacity, the ECB can tighten macroprudential measures implemented at the national level. In this paper, we ask whether the drivers of systemic risk differ when applying a national versus a European perspective. We use market data for about 100 listed European banks to measure each bank's contribution to systemic risk (SRISK) at the national and at the Euro Area level. Our research has three main findings. First, on average, systemic risk has increased during the financial crisis. The difference between systemic risk at the national and the European level is not very large but there is a considerable degree of heterogeneity both across countries and banks. Second, we explore the drivers of systemic risk. A bank s contribution to systemic risk increases in bank size, in bank profitability, and in the share of banks nonperforming loans. It decreases in the share of loans to total assets and in the importance of non-interest income. Third, the qualitative determinants of systemic risk are similar at the national and at the European level while the quantitative importance of some factors differs.