http://repub.eur.nl/res/aut/2208/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/10507/ 2007-09-14T00:00:00Z Is our financial system stable? Can we quantify the probability that a large shock reduces the value of our banks and insurers? In this research the joint losses of banks and insurers in the EU are estimated. The policy questions for financial sector regulation are described and theoretical explanations for the simultaneous losses of multiple financial institutions are given, based on the statistical toolset known as extreme value theory. This way, the joint behavior of the returns of banks, insurers and reinsurers is investigated. Special attention is devoted to sector and country risk. The empirical evaluation is relevant for policymakers. The theoretical approach offers interesting insights into the diversification properties of downside risk. http://repub.eur.nl/res/pub/7876/ 2006-07-08T00:00:00Z We model and measure simultaneous large losses of the market value of insurers to understand the impact of shocks on the insurance sector. The downside risk of insurers is explicitly modelled by common and idiosyncratic risk factors. Since reinsurance is important for the capacity of insurers, we measure risk dependence among European insurers and reinsurers. The results point to a relatively low insurance sector wide risk. Dependence among insurers is higher than among reinsurers. http://repub.eur.nl/res/pub/7426/ 2005-12-07T00:00:00Z We study the dependence between the downside risk of European banks and insurers. Since the downside risk of banks and insurers differs, an interesting question from a supervisory point of view is the risk reduction that derives from diversification within large banks and financial conglomerates. We discuss the limited value of the normal distribution based correlation concept, and propose an alternative measure which better captures the downside dependence given the fat tail property of the risk distribution. This measure is estimated and indicates better diversification benefits for conglomerates versus large banks. http://repub.eur.nl/res/pub/6657/ 2004-03-12T00:00:00Z Banks provide risky loans to firms which have superior information regarding the quality of their projects. Due to asymmetric information the banks face the risk of adverse selection. Credit Value-at-Risk (CVaR) regulation counters the problem of low quality, i.e. high risk, loans and therefore reduces the risk of the bank loan portfolio. However, CVaR regulation distorts the operation of credit markets. We show that a binding CVaR constraint introduces credit rationing and lowers social welfare. CVaR regulation also affects the operation of monetary policy.