Publication

This paper employs an Extreme Value Theory framework to investigate the existence of contagion between European and US banks. The fact that many regulators have no detailed data sets about interbank cross-exposures raises the necessity of finding market-based indicators in order to analyze the effects of crises and to quantify the risk of contagion. The Distance-to-default (DD) measure is employed as an indicator of banks' soundness. Focusing on the negative tail of the daily percentage changes of the DD, a country-specific indicator variable labeled "Co-exceedances" is built measuring the number of banks simultaneously experiencing a large shock on a given day.