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Systemic Risk in Europe

Author

Listed:
  • Robert Engle
  • Eric Jondeau
  • Michael Rockinger

Abstract

Systemic risk may be defined as the propensity of a financial institution to be undercapitalized when the financial system as a whole is undercapitalized. In this article, we investigate the case of non-US institutions, with several factors explaining the dynamics of financial firms returns and with asynchronicity of time zones. We apply this methodology to the 196 largest European financial firms and estimate their systemic risk over the 2000–12 period. We find that, for certain countries, the cost for the taxpayer to rescue the riskiest domestic banks is so high that some banks might be considered too big to be saved.

Suggested Citation

  • Robert Engle & Eric Jondeau & Michael Rockinger, 2015. "Systemic Risk in Europe," Review of Finance, European Finance Association, vol. 19(1), pages 145-190.
    • Handle: RePEc:oup:revfin:v:19:y:2015:i:1:p:145-190.
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    File URL: https://hdl.handle.net/10.1093/rof/rfu012
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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