Interconnectedness of the banking sector as a vulnerability to crises

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.

PELTONEN Tuomas;  RANCAN Michela;  SARLIN Peter; 

2018-11-21

WILEY-BLACKWELL

JRC113224

1076-9307 (online),   

https://onlinelibrary.wiley.com/doi/abs/10.1002/ijfe.1701,    https://publications.jrc.ec.europa.eu/repository/handle/JRC113224,   

10.1002/ijfe.1701 (online),