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Interconnectedness and Systemic Risk

  • Christopher L. Culp
  • Andria van der Merwe
  • Bettina J. Stärkle
Chapter
Part of the Palgrave Studies in Risk and Insurance book series (PSRIIN)

Abstract

The empirical literature regarding financial institution interconnectedness and potential systemic risk has burgeoned in the last decade. Broad conclusions from this research pertaining to credit default swaps (“CDSs”) include the following: (i) Single-name CDSs on corporate, banking, and sovereign reference entities are a source of interconnectedness and contain information that may be valuable to policy makers in measuring potential systemic risk, but there is a dearth of empirical evidence to indicate that single-name CDSs are systemically destabilizing; (ii) single-name sovereign CDSs are transmission mechanisms for economic shocks but not generally a cause of those shocks; and (iii) a “sovereign-bank” loop integrates the financial condition of the banking sector with sovereign credit risks.

Keywords

Credit default swap CDS Interconnectedness Systemic risk Sovereign CDSs Sovereign-bank loop European sovereign debt crisis Credit crisis Systemic risk 

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Christopher L. Culp
    • 1
  • Andria van der Merwe
    • 1
  • Bettina J. Stärkle
    • 2
  1. 1.Johns Hopkins UniversityBaltimoreUSA
  2. 2.Compass LexeconChicagoUSA

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