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|Title:||Interconnectedness of the banking sector as a vulnerability to crises|
|Authors:||PELTONEN TUOMAS; RANCAN MICHELA; SARLIN PETER|
|Citation:||INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS vol. 24 no. 2 p. 963-990|
|Type:||Articles in periodicals and books|
|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 macro-network also accounts for financial linkages to the other main financial and non-financial sectors within the economy. We find that a more central position of the banking sector in the macro-network significantly increases the probability of a banking crisis. By analyzing 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.|
|JRC Directorate:||Growth and Innovation|
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