On Bank Credit Risk : Systemic or Bank-Specific? Evidence from the US and UK

We develop a multivariate credit risk model that accounts for joint defaults of banks and allows us to disentangle how much of banks' credit risk is systemic. We find that the US and UK differ not only in the evolution of bank systemic risk, but also in their banks' systemic exposures. In both countries, however, systemic credit risk varies substantially, represents about half of total bank credit risk on average, and induces high risk premia. The results suggest that sovereign and bank systemic risk are increasingly interlinked in the UK