Estimating Spillover Risk Among Large EU Banks

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Estimating Spillover Risk Among Large EU Banks

by Martin Čihák of the International Monetary Fund, and
Li Lian Ong of the International Monetary Fund

November 2007

Abstract: The paper examines the scope for cross-border spillovers among major EU banks using information contained in the stock prices and financial statements of these banks. The results suggest that spillovers within domestic banking systems generally remain more likely, but the number of significant cross-border links is already larger than the number of significant links among domestic banks, adding a piece of empirical evidence supporting the need for strong cross-border supervisory cooperation within the EU.

JEL Classification: G21, G12, G28.

Keywords: European Union, financial stability, spillovers, contagion, large banks.

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