European bank credit risk transmission during the credit Suisse collapse

The effect of Credit Suisse collapse on the credit risk spillover across banks is understudied and unclear. Using the tail-event and network dynamics framework on weekly data covering 15 large European banks from March 11, 2020 to March 28, 2023, we show that the credit risk has a strong spillover effect on major banks, increasing systemic risk significantly after the collapse of Credit Suisse. This is notable for non-EU (Swiss and UK) banks in the post-collapse era. The findings are useful for policymakers and regulators concerned with contagious credit risk and the stability of the banking sector under extreme events.