Title: Catastrophic, Systemic and Financial Crisis: The Changing Nature of Financial Institution Risk
Abstract: A financial institution can fail due to its own risk (credit and operational) or due to risk arising from the failing of other institutions (contagion). This paper highlights the changing nature of banking risk from 2005 to 2011. Specifically, it investigates the impact of a financial crisis on the individual institution risk (1‰ tail risk) and on the contagion risk (CoVaR) of financial institutions. While these firms have become less risky individually, after the 2007-09 financial crisis the financial market has become more vulnerable to contagion. The causal inference that the crisis and the post-crisis legislation that have gradually changed the nature of financial institution risk is drawn from a quasi-experimental design. This finding suggests that the ever more integrated financial system might experience more synchronized contractions in future crises, providing empirical support for the proposals of the inter-bank collective regulation of banks by Acharya (2009) in addition to the intra-bank collective regulations as in Froot and Stein (1998) and BIS (1996, 1999).
Publication Year: 2013
Publication Date: 2013-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 1
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