Measuring Tail-Risk Cross-Country Exposures in the Banking Industry

Resumen

In this paper we analyze the state-dependent risk-spillover in different economic areas. To this end, we apply the quantile regression-based methodology developed in Adams, Füss and Gropp (2014) approach to examine the spillover in conditional tails of daily returns of indices of the banking industry in the US, BRICs, Peripheral EMU, Core EMU, Scandinavia, the UK and Emerging Markets. This methodology allows us to characterize size, direction and strength of financial contagion in a network of bilateral exposures to address cross-border vulnerabilities under different states of the economy. The general evidence shows as the spillover effects are higher and more significant in volatile periods tan in tranquil ones. There is evidence of tail spillovers of which much is attributable to a spillover from the US on the rest of the analyzed regions, especially on European countries. In sharp contrast, the US banking system shows more financial resilience against foreign shocks.