Abstract

Foreign-dominated banking sectors, such as those prevalent in Central and Eastern Europe, are susceptible to two major sources of systemic risk: (i) linkages between local banks, and (ii) linkages between a foreign parent bank and its local subsidiary. During and after the global financial crisis, the second source of risk has been stressed by local regulators. Using a nonparametric method based on extreme value theory, we analyze interdependencies in downward risk in the banking sectors of the Czech Republic, Poland, Slovakia, and Turkey during 1994–2013. We find that the risk of contagion from a foreign parent bank to its local subsidiary is substantially smaller than the risk between two local banks.

Conditional number of failures estimated from the returns of a parent bank and its subsidiary
Fig: Conditional number of failures estimated from the returns of a parent bank and its subsidiary

Reference: Tomas Fiala, Tomas Havranek (2017), "The sources of contagion risk in a banking sector with foreign ownership." Economic Modelling 60: 108-121.

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How to cite

Tomas Fiala, Tomas Havranek (2017), "The sources of contagion risk in a banking sector with foreign ownership." Economic Modelling 60: 108-121.

BibTeX 
@article{fiala2017contagion,
  author  = {Tomas Fiala and Tomas Havranek},
  title   = {The sources of contagion risk in a banking sector with foreign ownership},
  journal = {Economic Modelling},
  year    = {2017},
  doi     = {10.1016/j.econmod.2016.08.025},
}