Is the Central and Eastern European banking systems stable? Evidence from the recent financial crisis

MPRA Paper from University Library of Munich, Germany

Abstract: Systemic risk is a very important but very complex notion in banking and how to measure it adequately is challenging. We introduce a new framework for measuring systemic risk by using a risk-adjusted balance sheet approach. The measure models credit risk of banks as a put option on bank assets, a tradition that originated with Merton. We conceive of an individual bank’s systemic risk as its contribution to the potential sector-wide net. In this regard, the analysis of public commercial banks operating in 7 countries from Central and Eastern Europe, shows potential risk which could threaten all the financial system. The paper shows how risk management tools can be applied in new ways to measure and analyze systemic risk in European banking system. The research results is a systemic risk map for the CEE banking systems. The study finds also instability of systemic risk determinants.

Keywords: systemic risk; banking system; instability; emerging markets; Merton option model (search for similar items in EconPapers)
JEL-codes: A10 C01 C32 C58 G13 G21 G32 G33 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-rmg and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:58803

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