In this study, we analyzed the role of correlation in the interbank contagion mechanism, showing that the risk contribution of each bank is generally both influenced by the considered bank correlation to common variables, and by the system average correlation to the same variables.We also verified that the banks’ sensitivity to correlation is highly variable, but can be proxied on the base of some balance sheet values. These findings can provide significant references for a more effective regulation and supervision.
The Role of Correlation in Systemic Risk: Mechanisms, Effects, and Policy Implications
Zedda, Stefano
Primo
;Patanè, Michele;
2021-01-01
Abstract
In this study, we analyzed the role of correlation in the interbank contagion mechanism, showing that the risk contribution of each bank is generally both influenced by the considered bank correlation to common variables, and by the system average correlation to the same variables.We also verified that the banks’ sensitivity to correlation is highly variable, but can be proxied on the base of some balance sheet values. These findings can provide significant references for a more effective regulation and supervision.
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