Abstract
The contribution of this paper to literature is three-fold: (1) it empirically uncovers directionality and persistence of systemic risk surrounding the great recession; (2) it quantifies reaction of macro-economy to financial (banking) system shocks; and (3) it unearths feedback effects from macro-economy to (in)stability of a banking system. These contributions are attained by looking at extremal dependence structure among banks, by presenting a multivariate framework for identifying and modeling their joint-tail distributions, and by constructing an aggregate system-wide distress index, a risk-stability index, which quantifies systemic risk of a bank.
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