Knut Wicksell Working Paper Series,
Lund University, Knut Wicksell Centre for Financial Studies

Abstract: We suggest that banks contribute extensively to systemic risk only if they are both “risky” and centrally placed in the financial network. To calculate systemic risk we apply the ∆CoVaR measure of Adrian and Brunnermeier (2016) and measure centrality using detailed US loan syndication data. In agreement with our conjecture our main finding is that centrality is an important determinant of systemic risk but primarily not by its direct effect. Rather, its main influence is to make other firm specific risk measures more important for highly connected banks. A bank’s contribution to systemic risk from a fixed level of Value-at-Risk is about four times higher for a bank with two standard deviations above average centrality compared to a bank with average network centrality. Neglecting this indirect moderation effect of centrality severely underestimates the importance of centrality for “risky” banks and overestimates the effect for “safer” banks.

Keywords: systemic risk; network centrality; loan syndication; ∆CoVaR; quantile regression

JEL-codes: G10

40 pages, March 3, 2019

Full text files

KWCwp2019-1.pdf HTML file Full text

Download statistics

• Lund University, Knut Wicksell Centre for Financial Studies
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Jens Forssbaeck ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-02-05 17:12:46.