External Linkages And Contagion Risk In Irish Banks
The large and growing international linkages of big Irish banks expose them to idiosyncratic shocks arising in other countries. The authors analyze international interdependencies of Irish banks - during both normal times and in periods of large shocks or extreme events - using an existing methodology with distance to default (DD) data constructed from the banks' equity prices. The data covers daily observations from January 1994 to November 2005. The authors first construct rolling correlations between DDs of Irish banks and those of banks from other European countries and the U.S. to analyze trends in cross-country interdependencies.