The aftermath of the subprime crisis: a clustering
analysis of world banking sector
Soﬁa B. Ramos
Published online: 30 January 2013
Ó Springer Science+Business Media New York 2013
Abstract The banking sector has been on the spotlight in both academic and policy circles since
the outburst of the subprime bubble. The crisis has its roots in the US, but there were spillover
effects around the world. We study the behavior of the banking sector of 40 countries during the
period 2007–2010, using a new clustering methodology. Our methodology combines regime
switching models in the modeling of longitudinal variations with cluster analysis that identiﬁes
groups of countries with similar proﬁles. Our results show that although there were periods of
intense contagion, the impact was uneven among sample countries. The crisis had episodic effects
on some countries, while others had severe devaluations after the Lehman Brothers bankruptcy.
Finally, a small group of banking systems has plunged into a long severe crisis.
Keywords Banking sector Á Clustering methods Á Time series data Á Regime switching
models Á Hidden Markov model
JEL Classiﬁcation G21 Á C34 Á C38
The recent ﬁnancial crisis triggered a period of ﬁnancial contagion in the banking system.
It started in a niche of the US ﬁnancial markets, securities backed by subprimes mortgages,
that accounts only for 3 % of US ﬁnancial assets (Eichengreen et al. 2012), but the
worldwide distribution of such securities and the complex gridlock of transactions among
ﬁnancial institutions has infected the global banking system.
J. G. Dias (&) Á S. B. Ramos
Business Research Unit (BRU-IUL), Instituto Universita
rio de Lisboa (ISCTE-IUL), Av. das Forc¸as
Armadas, 1649–026 Lisbon, Portugal
S. B. Ramos
See a detailed description of the origins of the crisis in Shiller (2008), Calomiris (2008), Watson (2008),
and Blanchard (2009).
Rev Quant Finan Acc (2014) 42:293–308