Systemic Risk and Diversification Across European Banks and Insurers
Journal of Banking & Finance, Vol. 37, 2013, p. 773-785
Tinbergen Institute Discussion Paper No. 2005-110/2
38 Pages Posted: 15 Dec 2005 Last revised: 21 Feb 2013
Date Written: December 7, 2005
Abstract
We study the dependence between the downside risk of European banks and insurers. Since the downside risk of banks and insurers differs, an interesting question from a supervisory point of view is the risk reduction that derives from diversification within large banks and financial conglomerates. We discuss the limited value of the normal distribution based correlation concept, and propose an alternative measure which better captures the downside dependence given the fat tail property of the risk distribution. This measure is estimated and indicates better diversification benefits for conglomerates versus large banks.
Keywords: Financial conglomerates, Banking, Insurance, Diversification, Extreme Value Theory
JEL Classification: G21, G22, G28, C49
Suggested Citation: Suggested Citation
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