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SUMMARY:Bank Credit Risk Networks: Evidence from the Eurozone Crisis - Bro
 wnlees\, C (Universitat Pompeu Fabra)
DTSTART:20140922T143000Z
DTEND:20140922T151500Z
UID:TALK54414@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:Co-authors: Christina Hans (Universitat Pompeu Fabra)\, Eulali
 a Nualarte (Universitat Pompeu Fabra) \n\nThe European financial crisis ha
 s shown that the credit risk of large financial institutions is highly int
 erconnected as a results of a number of linkages between entities like exp
 osure to common assets and interbank lending. In this work we propose a no
 vel methodology to study credit risk interdependence in large panels of fi
 nancial institutions. We introduce a credit risk model in which bank defau
 lts can be triggered both by systematic economy wide and idiosyncratic ban
 k specific shocks. The idiosyncratic shocks are assumed to have a sparse c
 onditional dependence structure that we call the bank credit risk network.
  An estimation strategy based on CDS data and Lasso-type regression allows
  to estimate the parameters of the model and to recover the bank credit ri
 sk network structure. We apply this technique to analyse the interdependen
 ce of large European financial institutions between 2006 and 2013. Results
  show that the credit risk network captures a substantial amount of de pen
 dence on top of what can be explained by systematic factors. \n
LOCATION:Seminar Room 1\, Newton Institute
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