Journal of Financial Stability Vol. 29 2017
Credit risk interconnectedness: What does the market really know?
Abstract
We analyze the relation between market-based credit risk interconnectedness among banks during the crisis and the associated balance sheet linkages via funding and securities holdings. For identification, we use a proprietary dataset that has the funding positions of banks at the bank-to-bank level for 2006–2013 in conjunction with investments of banks at the security level and the credit register from Germany. We find asymmetries both cross-sectionally and over time: when banks face difficulties to raise funding, the interbank lending affects market-based bank interconnectedness. Moreover, banks with investments in securities related to troubled classes have a higher credit risk interconnectedness. Overall, our results suggest that market-based measures of interdependence can serve well as risk monitoring tools in the absence of disaggregated high-frequency bank fundamental data.
- DOI
- 10.1016/j.jfs.2017.01.002
- Volume
- 29
- Pages
- 1-12
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref