Abstract
ABSTRACT This paper examines cyclical behaviour of banks’ systemic risk contribution and exposure. Using a panel of 787 banks from country members of the Organization for Economic Co-operation and Development and the European Union covering the period 2000–2017, we document that both systemic risk contribution and exposure are positively related to business cycle. Systemic risk starts to accumulate in the financial sector during periods of boom when the output gap is positive. Furthermore, during periods of robust economic growth, the level of credit tends to increase dramatically, going hand in hand with asset and property prices developments. We also find that contribution and exposure to system-wide distress move procyclically during credit and house cycles, meaning that during upturns in credit and house cycles bank interconnectedness increases, but tend to fall during the downturns. However, individual risk of the banks evolves countercyclically during business and financial cycles.
Published Version
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