Forward looking banking stress in EMU countries



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Singh, Manish K. and Gómez-Puig, Marta and Sosvilla-Rivero, Simón (2014) Forward looking banking stress in EMU countries. [ Working Papers on International Economics and Finance; nº 14-10, ISSN: 1696-6376 ]

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Based on contingent claims analysis(CCA), this paper tries to estimate the systemic risk build-up in the European Economic and Monetary Union (EMU) countries using a market based measure "distance-to-default"(DtD). It analyzes the individual and aggregated series for a comprehensive set of banks in each eurozone country over the period 2004-Q4 to 2013-Q2. Given the structural differences in financial sector and banking regulations at national level, the indices provide a useful indicator for monitoring country specific banking vulnerability and stress. We find that average DtD indicators are intuitive, forward-looking and timely risk indicators. The underlying trend, fluctuations and correlations among indices help us analyze the interdependence while cross-sectional differences in DtD prior to crisis suggest banking sector fragility in peripheral EMU countries.

Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Contingent claim analysis; Distance-to-default; Systemic risk
Subjects:Social sciences > Economics > Banks and credit unions
Social sciences > Economics > Depressions
Social sciences > Economics > Econometrics
Social sciences > Economics > Economic integration
JEL:G01, G21, G28
Series Name:Working Papers on International Economics and Finance
ID Code:30644
Deposited On:29 Jun 2015 11:44
Last Modified:04 Jun 2020 17:01

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