Systemic risk of Spanish listed banks: a vine copula CoVaR approach

We measured the systemic impact of financial distress in a Spanish listed bank on other listed banks and on the European financial system, using conditional value at risk (CoVaR) as a systemic risk measure. We modelled multivariate dependence between listed banks using a hierarchical tree structure given by a vine copula model and, using bivariate copulas, dependence between listed banks and the European financial system. For the period January 2003 to March 2015, systemic risk dramatically increased around the time of the recent global financial crisis and, to a lesser extent, around the time of the European debt crisis. BBVA played a predominant role as it both transmitted and received systemic risk to and from the remaining listed banks. Santander played a minor role and the smallest banks, Sabadell and Bankinter, did not play any pivotal role, not even between themselves. Finally, the main systemic impact of the Spanish banks on the European financial systems originated in BBVA, Popular and Santander, with the other listed banks playing a minor role in risk transmission. These results have implications for the regulation of capital in financial institutions and for investor risk management decisions.