UC Santa Cruz

This study explores various approaches to measure systemic risk and global financial linkages. It consists of three chapters. Chapter 2 examines the degree of risk interconnectedness between U.S. and European banks using the conditional value-at-risk (CoVaR) approach. The results show that the pairwise CoVaR measure brings value added over value-at risk measure in quantifying the degree of risk dependence between global banks. Chapter 3 compares two distinct methods of estimating systemic risk measures that focus on tail dependence in financial institutions' equity returns: Delta CoVaR, MES and SRISK. The results highlight the relevance of the simpler estimation methods in identifying and ranking systemically important financial firms. Chapter 4 empirically investigates the determinants of nonperforming loans in the transition economies of Europe. It also study compares the drivers of credit risk for foreign and domestic banks. The empirical results show that macroeconomic environment is a principle factor that impacts banks' loan quality. More importantly, foreign ownership is associated with higher credit risk.