Abstract
Exposure of the banking system to the Global Financial Crisis attracted attention to the study of riskiness and spillover. This paper studies the pattern of systemic risk and size effect in the Indian banking sector. Based on market capitalization, three public sector banks and three from the private sector were taken. Data are taken from the year 2007 to 2020. The analysis is done through quantile- CoVaR (Conditional Value at Risk) and TENET (Tail-Event-Driven Network) measure. State variables like Indian market volatility and global risk measures negatively influence the Indian banks’ returns. Liquidity risk is a crucial aspect of private banks. Public banks experience public confidence even in the distress period. Large banks like HDFC and SBI bank offer the highest degree of systemic risk contribution. The role of private banks in transmitting systemic risk has been intensifying since 2015. Small-sized banks like PNB and BOB have become significant receivers and transmitters of risk.
Highlights
As per the famous saying, “Never let a crisis go waste,” the Global Financial Crisis (GFC) 2008 created an opportunity for revamping the financial system of the world’s economies
Banks are the primary institution to fuse financial liquidity for the proper functioning of the financial system and ensure stability, as proposed by Mishra, Mohan, and Sanjay [3]. They are considered a principal channel of stress transmission through their complex web of lendingborrowing relationships [4]. e risk spreads to other financial institutions in the form of liquidity crunches; those are exposed to the same securitized asset or repo
It contributes to the issue of systemic risk of Indian banks [23] of the various topics like the performance of banks [24], nonperforming assets [25], credit risk [26], etc. is is further assessed through the sensitivity of each bank to the macroeconomic variables and each other, as Adrian and Brunnermeier [1] suggested that the interaction of banks cannot be studied in isolation to its exogenous factors
Summary
As per the famous saying, “Never let a crisis go waste,” the Global Financial Crisis (GFC) 2008 created an opportunity for revamping the financial system of the world’s economies. India set up the Financial Stability and Development Council (FSDC) in 2010 It addresses the interconnectedness of the Indian financial system through proper systemic risk assessment measures. E paper is an attempt to understand the pattern of the interconnectedness of Indian public and private banks It contributes to the issue of systemic risk of Indian banks [23] of the various topics like the performance of banks [24], nonperforming assets [25], credit risk [26], etc. Is is further assessed through the sensitivity of each bank to the macroeconomic variables and each other, as Adrian and Brunnermeier [1] suggested that the interaction of banks cannot be studied in isolation to its exogenous factors It overcomes the limitation of the earlier measure of systemic risk, which assumed variables to be normally distributed. E paper is structured as follows: In Section 2, the theoretical background is built upon the systemic risk and is titled “Literature Review.” Section 3 explains the “Methodology and Data” used for the study, followed by “Empirical Analysis” in Section 4. e last section presents the “Conclusions” of the study
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