![]() Our novel empirical tool uses Bayesian VAR to address the dimensionality problem in large networks of banks and maps for every pair of banks in the system the shocks that they exchange. We denote this a bank’s Individual Systemic Risk (ISR). We provide a new metric for the systemic importance of banks based on the intensity of spillovers of daily CDS movements. Overall, the analyses reveal a difficulty in detecting specific explanatory factors for the consistency in systemic risk rankings across settings. Contrary, during less volatile market phases, the relevance of macroeconomic variables decreases. The less volatile the market, the more relevant the bank-individual variables become in explaining the rank correlations. Furthermore, their association with bank-individual and macroeconomic variables changes with the market conditions. During more volatile market phases, rank correlations are slightly larger than during less volatile phases. Our results also reveal that rank correlations are particularly sensitive to the overall market conditions. In general, rank correlations tend to be more associated with macroeconomic variables such as the unemployment rate than with bank-individual variables. More important, we also examine determinants of the degree of consistency in the classification according to the various SRMs. We empirically analyze the extent to which popular systemic risk measures (SRMs) yield comparable results regarding the systemic importance of a financial institution. Knowledge of the linkages that the banking system has with other countries, and how cross-border exposures endanger banks, will form a basis for regulations that ensure a safer financial system. Moreover, the amount of foreign capital invested in a bank is found to be a strong predictor of a bank’s international exposure. The findings confirm the existence of a significant transfer of risk from other countries to South Africa’s banking sector. The results show that South African banks are significantly prone to crises emanating beyond the country’s borders. The marginal expected shortfall is employed with data covering 2002 to 2020. This paper analyzes the cross-border systemic risk exposure of South African banks. Policymakers and regulators’ objective is to avoid financial crises, and even though they can somewhat control local conditions, internationally transmitted crises are difficult to tackle. Systemic susceptibility highlights the extent to which a banking sector is sensitive to negative shocks. ![]()
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