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2015-01_Dungey.pdf

2015-01_Dungey.pdf - Tasmanian School of Business and...

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Tasmanian School of Business and Economics University of Tasmania Discussion Paper Series N 2015 01 Sur fi ng through the GFC: Systemic risk in Australia Mardi DUNGEY University of Tasmania Ma Ʃ eo LUCIANI ECARES, Universite libre de Bruxelles Marius MATEI University of Tasmania David VEREDAS ECARES, Universite libre de Bruxelles ISBN 978 1 86295 806 7
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Surfing through the GFC: Systemic risk in Australia Mardi Dungey 1 Matteo Luciani 2 Marius Matei 3 David Veredas 4 April 22, 2015 Abstract We provide empirical evidence on the degree of systemic risk in Australia before, during and after the Global Financial Crisis. We calculate a daily index of systemic risk from 2004 to 2013 in order to understand how real economy firms influence the outcomes for the rest of the economy. This is done via a mapping of the interconnect- edness of the financial and non-financial sectors. The financial sector is in general the home to the most consistently systemically risky firms in the economy. The mining sector becomes occasionally as systemically risky as the financial sector, reflecting the importance of understanding the interrelationships between the financial sector and the real economy in monitoring systemic risks. Keywords : banking, insurance, systemic risk JEL classification : G22,G21,G01,G28 1 Tasmanian School of Business and Economics, University of Tasmania; CFAP University of Cambridge, CAMA ANU; email: [email protected] 2 ECARES, Solvay Brussels School of Economics and Management, Université libre de Bruxelles (ULB); F.R.S.–FNRS; email: [email protected] 3 Tasmanian School of Business and Economics, University of Tasmania; email: mar- [email protected] 4 ECARES, Solvay Brussels School of Economics and Management, Université libre de Bruxelles (ULB); email: [email protected] Corresponding address: Mardi Dungey, Tasmanian School of Business and Economics, University of Tas- mania, Private Bag 84, Hobart, Tasmania, 7001, Australia. Phone: +61362261839. We thank participants at the Macquarie Risk Day 2013, CFE 2013, ESAM-ACE2014 for useful com- ments. The authors acknowledge the support provided for this research by the Centre for International Finance and Regulation under Grant E102: Detecting Systemically Important Risk . Matteo Luciani also acknowledges F.R.S.-FNRS for financial support.
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1 Introduction The Australian financial sector weathered the financial turmoil of international markets during 2007-2013 relatively well, retaining high credit ratings as well as good access to international funding markets, RBA (2009). Although the IMF (2012) asserted that the Australian banking sector is capable of withstanding severe macroeconomic shocks, the Australian Financial System Inquiry (AFSI) Final Report (Treasury, 2014) suggests that an asset value shock of similar magnitude to those experienced in the US or Europe during the Global Financial Crisis would cause Australian banks major distress. It is therefore clear that measuring the level of systemic risk in Australia is crucial.
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