Crossborder financial contagion to Germany: How important are OTC dealers? |
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| Institution: | 1. Deutsche Bundesbank, P.O. Box 10 06 02, 60006 Frankfurt, Germany;2. European Central Bank, 60311 Frankfurt, Germany;1. Department of Mathematics, Humboldt-University Berlin, Unter den Linden 6, Berlin 10099, Germany;2. Center for Finance and Insurance, University of Zurich, Andreasstrasse 15, Zurich 8050, Switzerland |
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| Abstract: | We examine crossborder contagion from a number of financial systems to the German financial system using the information content of CDS prices in a GARCH model. After controlling for common factors which may cause comovement in security prices, we find evidence for contagion from the US and European financial systems. Assessing contagion for dealer and non-dealer banks suggests that contagion from dealer banks is the most prominent source of contagion to the German financial system. While German non-dealer banks are affected both by European and US dealers, only US dealer banks have a contagion effect to German dealer banks. |
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