Analysis of banks’ systemic risk contribution and contagion determinants trough the leave-one-out approach

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In this paper we develop an in-depth analysis of the systemic risk and contagion determinants, trough the differential effects on the banking system of excluding one bank.
The splitting of risk contributions as the sum of two components, namely the stand-alone bank risk and the contagion risk, allow measuring the role of assets riskiness, capitalization, and interconnectedness. We find that the stand-alone and contagion components are not strictly linked each other, so one bank that is relatively safe as a single can turn out to be an important contagion vehicle as part of a network, and that capital is more effective in reducing the contagion component than the stand-alone one.
The different behavior of the systems in different crises severity, and the capability of this method to assess the macro effects of micro variations, allow for a more accurate targeting of specific supervisory interventions, resulting in a relevant contribute to macroprudential regulation.

Author(s):

Stefano Zedda    
University of Cagliari
Italy

Giuseppina Cannas    
European Commission
Italy