Unveiling Systemic Risk Spillover between Banks and the Broader Economy in Morocco

Abstract

This paper examines the growing importance of systemic risk transmission within financial systems, where cross-sectoral interdependencies can amplify financial instability, particularly during periods of economic and financial stress. This study investigates the systemic importance of the banking industry and identifies the sectors most susceptible to systemic contagion effects. To this end, it analyzes the network of interconnections between the banking sector and the Moroccan economy. A network-based methodological framework is employed. Tail risk is estimated using an Exponentially Weighted Moving Average Value at Risk approach, while dependency structures are captured through correlations among VaR series. These relationships are subsequently filtered using Triangulated Maximally Filtered Graphs and examined through the Louvain community detection algorithm and eigenvector centrality measures to characterize network topology, sectoral clustering, and systemic relevance across different periods. The findings reveal strong and persistent interconnections between the banking sector and key segments of the Moroccan economy. The results highlight the banking sector as a central node within the network, reflecting its critical role in the transmission and amplification of systemic risk. This study underscores the value of network-based approaches for macroprudential surveillance and the early detection of systemic vulnerabilities in emerging market economies.