Banking sector fragility linkages in the euro area: Evidence for crisis years 2007-2010

- We analyze Eurozone banking sector fragility linkages in the period 2007-2010.
- We use rolling Granger causality tests to examine their time-varying behavior.
- We observe a significant increase in fragility linkages during the recent crisis.
- The epicenter of spillover risk shifted from periphery towards the core countries.

We investigate fragility linkages among national banking sectors in the euro area during the crisis years 2007-2010. We find that their number increased sharply with the outbreak of the subprime crisis in the US in the first half of 2007 and then remained at a relatively constant and high level until the Greek bailout and the creation of the Eurozone-wide bailout funds in mid-2010. The epicenter of spillover risk shifted from banking sectors in the euro area periphery towards banking sectors in the core countries during the period.