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Article

A Comprehensive Approach for Calculating Banking Sector Risks †

1
European Central Bank, 60314 Frankfurt, Germany
2
Department of Mathematics, National and Kapodistrian University of Athens, 15772 Athens, Greece
*
Author to whom correspondence should be addressed.
The views expressed in this paper are those of the authors and do not necessarily represent those of the ECB.
These authors contributed equally to this work.
Int. J. Financial Stud. 2020, 8(4), 69; https://doi.org/10.3390/ijfs8040069
Received: 11 October 2020 / Revised: 2 November 2020 / Accepted: 3 November 2020 / Published: 10 November 2020
(This article belongs to the Special Issue Quantitative Finance)
We propose a comprehensive approach for the analysis of real economy and government sector risk transmission to the banking system and apply it in ten Euro-Area countries from 2005 to 2017. A flexible methodology is developed to model banks’ assets according to the risk-adjusted balance sheet of the counterparts. The use of distance to distress as a popular risk metric shows that Contingent Claims Analysis underestimates banks risk in stable periods and overstates it during crisis. Furthermore, the approach succeeds in detecting spillovers from households, non-financial corporations and sovereign sectors: for the countries examined the main source of instability comes from the Non-Financial Corporation sector and its increased assets volatility. View Full-Text
Keywords: banking risks; distance-to-default; contingent claims analysis banking risks; distance-to-default; contingent claims analysis
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MDPI and ACS Style

Salleo, C.; Grassi, A.; Kyriakopoulos, C. A Comprehensive Approach for Calculating Banking Sector Risks. Int. J. Financial Stud. 2020, 8, 69. https://doi.org/10.3390/ijfs8040069

AMA Style

Salleo C, Grassi A, Kyriakopoulos C. A Comprehensive Approach for Calculating Banking Sector Risks. International Journal of Financial Studies. 2020; 8(4):69. https://doi.org/10.3390/ijfs8040069

Chicago/Turabian Style

Salleo, Carmelo, Alberto Grassi, and Constantinos Kyriakopoulos. 2020. "A Comprehensive Approach for Calculating Banking Sector Risks" International Journal of Financial Studies 8, no. 4: 69. https://doi.org/10.3390/ijfs8040069

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