Work detail

Stability of the Financial System: Systemic Dependencies between Bank and Insurance Sectors

Author: Mgr. Jana Procházková
Year: 2014 - summer
Leaders:
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 75
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/138388/
Abstract: The central issue of this thesis is investigating the eventuality of systemic break-
downs in the international financial system through examining systemic depen-
dence between bank and insurance sectors. Standard models of systemic risk
often use correlation of stock returns to evaluate the magnitude of intercon-
nectedness between financial institutions. One of the main drawbacks of this
approach is that it is oriented towards observations occurring along the central
part of the distribution and it does not capture the dependence structure of
outlying observations. To account for that, we use methodology which builds
on the Extreme Value Theory and is solely focused on capturing dependence
in extremes. The analysis is performed using the data on stock prices of the
EU largest banks and insurance companies. We study dependencies in the pre-
crisis and post-crisis period. The objective is to discover which sector poses a
higher systemic threat to the international financial stability. Also, we try to
find empirical evidence about an increase in interconnections in recent post-
crisis years. We find that in both examined periods systemic dependence in
the banking sector is higher than in the insurance sector. Our results also in-
dicate that extremal interconnections in the respective sectors increased, while
an increase in bank-to-insurer relationships is the most noticeable.

Partners

Deloitte

Sponsors

CRIF
McKinsey
Patria Finance