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Michela Rancan

6 February 2013
WORKING PAPER SERIES - No. 1510
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Abstract
We use financial accounts data at sector level to construct financial networks for individual euro area countries. We then connect the country-level networks to one large
JEL Code
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G01 : Financial Economics→General→Financial Crises
G15 : Financial Economics→General Financial Markets→International Financial Markets
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
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Macroprudential Research Network
16 November 2015
WORKING PAPER SERIES - No. 1866
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Abstract
This paper uses domestic and cross-border linkages 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, we also account for financial linkages to the other main financial and non-financial sectors within the economy. We enrich conventional early-warning models using macro-financial vulnerabilities, by including measures of banking sector centrality as potential determinants of banking crises. Our results show that a more central position of the banking sector in these so-called macro-networks significantly increases the probability of a banking crisis. By analyzing the different types of risk exposures, our evidence shows that credit as well as market risks are important sources of vulnerabilities. Finally, the results show that early-warning models augmented with interconnectedness measures outperform traditional models in terms of out-of-sample predictions of recent banking crises in Europe.
JEL Code
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G20 : Financial Economics→Financial Institutions and Services→General