Open AccessOn the Risk-based Contagion of G7 Banking System and the COVID-19 Pandemic
Author(s) -
Paulo Rogério Faustino Matos,
Antonio Costa,
Cristiano da Silva
Publication year - 2021
Publication title -
global business review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.419
H-Index - 25
eISSN - 0973-0664
pISSN - 0972-1509
DOI - 10.1177/09721509211026813
Subject(s) - pandemic , covid-19 , granger causality , financial contagion , economics , business , relevance (law) , causality (physics) , contagion effect , financial system , monetary economics , financial crisis , financial economics , political science , econometrics , macroeconomics , medicine , physics , disease , pathology , quantum mechanics , infectious disease (medical specialty) , law
We revisit the discussion on banking system contagion by proposing a risk-based empirical analysis during the current pandemic period. We use daily returns on G7 banking sector indices from 1 January 2015 to 31 December 2019 (pre-pandemic), and from 1 January 2020 to 16 October 2020 (pandemic). Based on the dissimilarities, the pandemic has intensified banking contagion. Frequency-based Granger causality is useful to tell the history of the pass-through of this health crisis across G7 banking sectors. We highlight the increase in the predictive relevance of Italian banking cycles during the pandemic. VaR ratio analysis, considering 21 possible pairwise combinations with the G7 financial indices, suggests a stronger contagion between banking systems. The greatest contagion is evident in the Italian and French banking systems, countries severely affected by deaths by COVID-19, while we find less contagion between Japan and Germany, countries least affected by the first wave of COVID-19.