Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/218944
Authors: 
Baumöhl, Eduard
Bouri, Elie
Hoang, Thi-Hong-Van
Shahzad, Syed Jawad Hussain
Výrost,Tomáš
Year of Publication: 
2020
Abstract: 
Over the last few decades, large banks worldwide have become more interconnected, and as a result, the failure of one can trigger the failure of many. In finance, this phenomenon is often known as financial contagion, which can occur as a domino effect. In this paper, we show an unprecedented increase in bank interconnectedness during the outburst of the COVID-19 pandemic. We measure how extreme negative stock market returns for one bank spill over to all other banks within the network, and on this basis, we propose a new measure of systemic risk among banks. Our results indicate that the systemic risk and the density of the spillover network have never been as high as they have been during the pandemic, not even during the 2008 global financial crisis. Policy makers and regulatory authorities should be particularly cautious regarding this interconnected financial environment, as second waves of the pandemic could pose a significant danger to the worldwide economy, and the “it’s-just-a-flu” narrative will no longer be an option.
Subjects: 
systemic risk
banks
COVID-19
pandemic
cross-quantilogram
financial networks
interconnectedness
JEL: 
G01
G15
G21
G28
C21
Document Type: 
Working Paper

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