Contemporaneous Transmission Networks and Systemic Risk in European Banking

The authors fit a recursive non-Gaussian network model to volatility-standardised equity returns of 51 listed European banks. From direct and indirect transmission effects they build two market-capitalisation-weighted measures: a systemic impact score for a bank’s potential influence on others, and a systemic vulnerability score for its exposure to shocks from elsewhere.

The fitted network separates banks with large outward influence from those with high incoming sensitivity. Receiving roles are more reproducible than transmitting roles across repeated estimation, and selected links remain informative about lower-tail dependence in later data. The paper is explicit about its limits: the full-sample model does not meet the authors’ criterion for independent shocks, and alternative orderings give similar tail asymmetries.