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We investigate the drivers of systemic risk and contagion among banks in the Latin American financial sector. First, a systemic risk measure analysing tail co-movements of daily stock returns of all Latin American banks is derived. We then run panel regressions for our systemic risk measure using idiosyncratic bank characteristics and macroeconomic control variables. Our results include various significant drivers of systemic importance of banks in Latin America like bank size, market concentration and high government indebtedness. Interestingly, we empirically prove that during the financial/economic crisis (2006-2011) systemic risk was driven by banks with low earning prospects and relatively sound deposit management whereas poor capital regulation drove systemic risk of banks during the stable periods before (2003-2005) and after the crisis (2012-2014). [ABSTRACT FROM AUTHOR]

Financial institutions show a characteristic risk exposure and vulnerability, making them prone to instability. Financial systems in Latin America, however, were left largely unscathed by the global financial crisis starting in 2008. This state-of-the-art survey provides an in-depth analysis on the identification and regulation of systemically important financial institutions (SIFIs). While Latin America benefits from its rich historical experience in managing systemic risks, we find the problem of SIFIs to be still underestimated. However, there are first efforts to cope with SIFIs in science and particularly Latin American supervisors and regulators are starting to take the threat posed by SIFIs seriously. [ABSTRACT FROM AUTHOR]