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Volatility spillovers and capital buffers among the G-SIBs

Author

Listed:
  • Paul D McNelis
  • James Yetman
Abstract
We assess the dynamics of volatility spillovers among global systemically important banks (G-SIBs). We measure spillovers using vector-autoregressive models of range volatility of the equity prices of G-SIBs, together with machine learning methods. We then compare the size of these spillovers with the degree of systemic importance measured by the Basel Committee on Banking Supervision's G-SIB bucket designations. We find a high positive correlation between the two. We also find that higher bank capital reduces volatility spillovers, especially for banks in higher G-SIB buckets. Our results suggest that requiring banks that are designated as being more systemically important globally to hold additional capital is likely to reduce volatility spillovers from them to other large banks.

Suggested Citation

  • Paul D McNelis & James Yetman, 2020. "Volatility spillovers and capital buffers among the G-SIBs," BIS Working Papers 856, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:856
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    More about this item

    Keywords

    G-SIBs; contagion; connectedness; bank capital; cross validation;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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