Systemic risk contagion within US states

Purpose: This study aims to examine the systemic risk contagion in banks from 15 US states using extreme shocks in their distance to risk. Design/methodology/approach: The authors contemplate a model that inputs co-exceedances in the base US states' banking sector as the dependent variable and the co-exceedances in other states' banking sector (along with other underlying variables of a banking system) as the explanatory variables. Findings: The authors find smaller states transmit and receive more systemic shocks than their larger counterparts and larger states exhibit a better shock-resisting capacity than their smaller counterparts. The authors also find that bigger shocks are more contagious than the smaller shocks. Originality/value: This will be the first paper that will investigate the inner linkage of US states' banking network using three different distance to risk methods, thus providing timely guidance for regulators.