Asset commonality of European banks
In this paper, we investigate the notion of asset commonality. We describe the evolution of asset commonality, for 43 European banks over 15 countries, by comparing the 2011 and 2016 EU-wide stress test reporting. We determine the main variables that influence asset commonality and its evolution. We notice that asset commonality can be used as a complementary measure to other market systemic risk measures. Furthermore, we find that asset commonality can influence the returns negatively and the volatility of the bank positively. We also find that some banks, which have no funding problems or fire sales, have experienced a decrease in their performance. Asset commonality can be seen as an interesting tool than can be used by regulators.
KeywordsAsset commonality Bank regulation Systemic risk
JEL ClassificationsG21 G28
The author is grateful to Pr. Diane Pierret for her valuable comments and availability during the exchange semester at HEC Lausanne.
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