We evaluate multiple market-based measures for US and eurozone individual bank tail risk and bank systemic risk. We apply statistical extreme value analysis to the tails of bank equity capital losses to estimate the likelihood of individual institutions' financial distress as well as individual banks' exposure to each other ("spillover risk") and to global shocks ("extreme" systematic risk). The estimation procedure presupposes that bank equity returns are "heavy tailed" and "tail dependent" as identifying assumption. Using both US and eurozone banks allows one to make a cross-Atlantic comparison of tail risks and systemic stability. We also assess to what extent magnitudes of tail risk and systemic risk have been altered by the global financial crisis. The results suggest that both tail risk and systemic risk in the US are higher than in the eurozone regardless of the considered sample period.
- Systemic risk
- Asymptotic dependence
- Multivariate extreme value theory
- LIQUIDITY PROVISION