This paper investigates the interplay between two types of banking risk: market and credit. By verifying the volatility feedback loop hypothesis, we employ a multilayer information spillover network to explore information flow (risk spillover) between market and credit risks of European Global Systemically Important banks (G-SIBs). We analyse their role in transmitting market and credit risk, showing that capturing spillovers of both risks provides a more comprehensive perspective on financial risk contagion. Our findings have important implications for policymakers and risk managers, aiding in better risk assessment and timely crisis response, improving financial stability.

Interconnectedness between stock and credit markets: The role of European G-SIBs in a multilayer perspective

Matteo Foglia;Caterina Di Tommaso;Vincenzo Pacelli
2024-01-01

Abstract

This paper investigates the interplay between two types of banking risk: market and credit. By verifying the volatility feedback loop hypothesis, we employ a multilayer information spillover network to explore information flow (risk spillover) between market and credit risks of European Global Systemically Important banks (G-SIBs). We analyse their role in transmitting market and credit risk, showing that capturing spillovers of both risks provides a more comprehensive perspective on financial risk contagion. Our findings have important implications for policymakers and risk managers, aiding in better risk assessment and timely crisis response, improving financial stability.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11586/457040
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