This paper uses macro-network to measure the interconnectedness of the banking sector and relates it to banking crises in Europe. Beyond cross-border financial linkages of the banking sector, the macronetwork also accounts for financial linkages to the other main financial and nonfinancial sectors within the economy. We find that a more central position of the banking sector in the macronetwork significantly increases the probability of a banking crisis. By analysing the different types of risk exposures, our evidence shows that credit is an important source of vulnerability. Finally, our early-warning models augmented with interconnectedness measures outperform traditional models in terms of out-of-sample predictions.

Interconnectedness of the banking sector as a vulnerability to crises / T. Antero Peltonen, M. Rancan, P. Sarlin. - In: INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS. - ISSN 1076-9307. - 24:2(2018), pp. 963-990. [10.1002/ijfe.1701]

Interconnectedness of the banking sector as a vulnerability to crises

M. Rancan
Secondo
;
2018

Abstract

This paper uses macro-network to measure the interconnectedness of the banking sector and relates it to banking crises in Europe. Beyond cross-border financial linkages of the banking sector, the macronetwork also accounts for financial linkages to the other main financial and nonfinancial sectors within the economy. We find that a more central position of the banking sector in the macronetwork significantly increases the probability of a banking crisis. By analysing the different types of risk exposures, our evidence shows that credit is an important source of vulnerability. Finally, our early-warning models augmented with interconnectedness measures outperform traditional models in terms of out-of-sample predictions.
banking crises; early-warning model; financial interconnectedness; macronetworks
Settore SECS-P/11 - Economia degli Intermediari Finanziari
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/940522
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