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External Linkages and Contagion Risk in Irish Banks, Srobona Mitra, Elena Duggar

Contributor
Abstract
The large and growing international linkages of big Irish banks expose them to idiosyncratic shocks arising in other countries. We analyze international interdependencies of Irish banks-during both normal times and in periods of large shocks or extreme events-using an existing methodology with distance to default (DD) data constructed from the banks' equity prices. The data covers daily observations from January 1994 to November 2005. We first construct rolling correlations between DDs of Irish banks and those of banks from other European countries and the U.S. to analyze trends in cross-country interdependencies. We then use a multinomial logit model to estimate the number of banks in Ireland that experience a large shock on the same day as banks in other countries ("coexceedances"), controlling for Ireland-specific and global factors. We find evidence of increasing cross-border interdependencies over time; differing interlinkage patterns in the pre-Euro, post-Euro, and the post-September 11th periods; and significant cross-border contagion risk from the United Kingdom, the United States, and the Netherlands. This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Table Of Contents
Contents; I. Introduction; Boxes; 1. Sources of Contagion-A Literature Survey; II. Some Evidence of External Linkages of the Irish Banking Sector; III. Trends in Interdependencies Using Distance to Default Indicators; 2. The Distance to Default Measure and Data Issues; IV. Econometric Analysis of Contagion Risk Using Coexceedances; A. Methodology and Data; B. Econometric Model Results; V. Summary and Conclusions; References; Figures; 1. International Financial Claims and Liabilities of BIS Reporting Banks Resident in Ireland
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (40 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781452706740

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