Uncertainty, Systemic Shocks and the Global Banking Sector: Has the Crisis Modified their Relationship?

Abstract

We estimate the impact of equity market uncertainty and an unobservable systemic risk factor on the returns of the major banks in the global banking sector. Our estimation combines quantile regressions, structural changes, and factor models and allows us to explore the stability of systemic risk propagation among financial institutions. We find that risk propagation has remained stable over the last decade, and we report evidence indicating that equity market uncertainty is a major systemic factor for the global banking system. Additionally, we provide a new simple tool for measuring the resilience of financial institutions to systemic shocks.