Systemic risk is the risk of a collapse of the entire financial system, typically triggered by the default of one, or more, interconnected financial institutions. In this paper, we estimate the systemic risk contribution of Italian-listed banks for the period 2000–2011. We follow a methodology first proposed by Adrian and Brunnermeier and measure banks' contribution to systemic risk by ΔCoVaR, which measures the contribution of bank i to the financial system VaR when bank i is in a state of distress. We define ‘the system’ as the set of Italian-listed banks in the sample. First, we find that the information contained in ΔCoVaR is different from that contained in the VaR. Therefore, regulators should take it into account in order to monitor the systemic risk posed by banks. Second, recent policy debate has focused on the danger posed by large banks and on the need to curb their size. We find that size is indeed the main predictor of a bank contribution to systemic risk. However, in the post-Lehman period, leverage is also an important predictor of systemic risk. Consequently, any financial regulation designed only to curb banks' size could not completely eliminate systemic risk because it is exactly in crisis times that leverage becomes relevant. Hence, we conclude that ΔCoVaR is a very useful policy tool for regulators that can estimate which factors are more relevant in terms of contribution to systemic risk
In this paper we provide empirical evidence on the impact of US and UK monetary policy changes on credit supply of banks operating in Italy and France over the period 2000-2015, exploring the existence of an international bank lending channel. Exploiting bank balance sheet heterogeneity, we find that monetary policy tightening abroad leads to a reduction of credit supply at home, in particular for US monetary policy changes. Our results show that USD funding plays an important role in the transmission mechanism, especially for French banks which rely to a larger extent on USD funding. We also show that banks adjust their euro and foreign currency lending differently, thus implying that funding sources in different currencies are not perfect substitutes. This is especially the case when tensions in currency swap markets are high, thus resulting in costly cross-currency funding.
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