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Measuring systemic risk in the Colombian financial system: A systemic contingent claims approach

Author

Listed:
  • Romero, Laura Capera
  • Gonza´Lez, Esteban Go´Mez
  • Quintero, Mariana Laverde
  • Mosquera, Miguel A´Ngel Morales

Abstract

The financial crisis of the late 2000s underscored the importance of identifying systemically significant institutions and developing mechanisms to internalise the externalities they create on the economy should they fail. Using monthly data for the period between September 2001 and March 2011, bankspecific probabilities of default and expected losses given default are calculated. Subsequently, the joint distribution of such expected losses is estimated and the aggregate cost of the implicit bailout option for the government is quantified. Results suggest that even though systemic risk is currently not a major concern in the Colombian banking system, quantifying these risks helps to enhance the supervisory and regulatory framework. Continuous monitoring of the joint expected losses given default should assist in anticipating future stress scenarios and, as such, constitutes a powerful macroprudential tool for policymakers.

Suggested Citation

  • Romero, Laura Capera & Gonza´Lez, Esteban Go´Mez & Quintero, Mariana Laverde & Mosquera, Miguel A´Ngel Morales, 2013. "Measuring systemic risk in the Colombian financial system: A systemic contingent claims approach," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 6(3), pages 253-279, July.
    • Handle: RePEc:aza:rmfi00:y:2013:v:6:i:3:p:253-279
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    More about this item

    Keywords

    contingent claims; systemic risk; macroprudential supervision; Black–Scholes–Merton; copula;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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