Chapter 20. External Linkages and Contagion Risk in Irish Banks
Author:
Mrs. Elena H Duggar
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Language:
English
Print Publication Date:
23 Dec 2014
Keywords:
BOOK; IMF staff; balance sheet; BNP Paribas; credit growth; shortfall exercise; Stress testing; Loans; Credit risk; Nonperforming loans; Commercial banks; Global; Europe; Eastern Europe; Southern Europe; Africa

Abstract

Increasing financial integration makes the assessment of cross-country linkages crucial for effective financial surveillance. This study estimates contagion risk between large Irish banks and European and U.S. banks during 1994–2005, using distance-to-default measures and the methodology of extreme value theory. Employing an ordered logit model and controlling for Ireland-specific and global shocks, we find evidence of significant contagion risk coming from the United Kingdom, the United States, and the Netherlands toward Ireland. We also find that patterns of contagion to Irish banks have shifted over time, coming from the United Kingdom in the pre-euro period and from the United States in the post-2001 period.

Contributor Notes

This chapter was previously published in IMF Staf Papers (2009), Vol. 56, No. 4, pp. 758–86 (Duggar and Mitra, 2009). It was prepared in the context of the 2006 Financial Sector Assessment Program Update on Ireland. The authors would like to thank Arabinda Basistha, Martin Čihák, Salim Darbar, James Morsink, Mark O’Brien, and Mark Swinburne for very useful comments and Marianne El-Khoury and Kiran Sastry for excellent research assistance. The authors would especially like to thank staf of the Irish Central Bank and the Financial Regulator for very useful discussions and data.
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Cover A Guide to IMF Stress Testing
A Guide to IMF Stress Testing
Methods and Models
Author:
Ms. Li L Ong
ISBN:
9781484368589
Publication Date:
23 Dec 2014
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781484368589.071
Pages:
612
Front Matter
Chapter 1. Stress Testing at the International Monetary Fund: Methods and Models
Part I: The Accounting-Based Approach
Section A. The Balance Sheet–Based Approach
Chapter 2. Introduction to the Balance Sheet–Based Approach to Stress Testing
Chapter 3. Stress Tester: A Toolkit for Bank-by-Bank Analysis with Accounting Data
Chapter 4. Into the Great Unknown: Stress Testing with Weak Data
Chapter 5. Next-Generation Applied Solvency Stress Testing
Chapter 6. Of Runes and Sagas: Perspectives on Liquidity Stress Testing Using an Iceland Example
Chapter 7. Next-Generation Systemwide Liquidity Stress Testing
Chapter 8. Systemic Bank Risk in Brazil: A Comprehensive Simulation of Correlated Market, Credit, Sovereign, and Interbank Risks
Chapter 9. Modeling Correlated Systemic Bank Liquidity Risks
Chapter 10. Review and Implementation of Credit Risk Models
Chapter 11. Bankers without Borders? Implications of Ring-Fencing for European Cross-Border Banks
Chapter 12. Conducting Stress Tests of Defined Benefit Pension Plans
Section B. The Network Analysis Approach
Part II: The Market Price-Based Approach
Section A. The Equity Indicators–Based Approach
Section B. The Extreme Value Theory Approach
Section C. The Contingent Claims Analysis Approach
Part III: The Macro-Financial Approach
Back Matter