Measuring Systemic Risk Potential Across Banks in Asia

Abstract

The unusual severity of the recent global financial crisis has drawn much attention to systemic risk, particularly its measurement, and the institutions that contribute most to it. This paper provides an empirical examination of the systemic risk potential among banking institutions in Asia using CoVaR and Granger causality network approaches. The empirical evidence for a potential systemic crisis among Asia banks is ambiguous. The analysis reveals that the degree of interconnectedness has general gone up among banks in Asia. Nevertheless, the causal network among the banks has become less dense after the global financial crisis in 2007-2009. Banks from developed Asia economies generally rank higher compared to those from emerging market counterparts. Finally, we find that the greatest contributors to systemic risk are not necessarily large banks.