Systemic Loss: A Measure of Financial Stability (in English)
AbstractThe literature on modeling defaults in individual financial institutions has expanded dramatically. However, the links between defaults in individual institutions and system-wide crises remain inadequately understood, despite some recent attempts to transpose the existing indicators of the probability of default in individual institutions to the systemic level. The paper argues that any measure of systemic stability should incorporate three elements: probabilities of failure in individual financial institutions, loss given default in financial institutions, and correlation of defaults across institutions. It contains a review of existing measures of financial stability and finds that they generally fall short of this standard. The author demonstrates that looking at the distribution of systemic loss can lead to a clearer differentiation of cases of stability and instability.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.
Volume (Year): 57 (2007)
Issue (Month): 1-2 (March)
failures; financial sector; market-based indicators; soundness indicators;
Find related papers by JEL classification:
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- K20 - Law and Economics - - Regulation and Business Law - - - General
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alegria, Carlos & Schaeck, Klaus, 2008. "On measuring concentration in banking systems," Finance Research Letters, Elsevier, vol. 5(1), pages 59-67, March.
- Demirguc-Kunt, Asli & Detragiache, Enrica & Tressel, Thierry, 2006.
"Banking on the principles : compliance with Basel Core Principles and bank soundness,"
Policy Research Working Paper Series
3954, The World Bank.
- Demirgüç-Kunt, AslI & Detragiache, Enrica & Tressel, Thierry, 2008. "Banking on the principles: Compliance with Basel Core Principles and bank soundness," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 511-542, October.
- Enrica Detragiache & Thierry Tressel & Asli DemirgÃ¼Ã§-Kunt, 2006. "Banking on the Principles: Compliance with Basel Core Principles and Bank Soundness," IMF Working Papers 06/242, International Monetary Fund.
- Reint Gropp & Jukka Vesala & Giuseppe Vulpes, 2002.
"Equity and bond market signals as leading indicators of bank fragility,"
Conference Series ; [Proceedings],
Federal Reserve Bank of Boston.
- Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2006. "Equity and Bond Market Signals as Leading Indicators of Bank Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 399-428, March.
- Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2002. "Equity and bond market signals as leading indicators of bank fragility," Working Paper Series 0150, European Central Bank.
- Jorge A. Chan-Lau & Toni Gravelle, 2005. "The END: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability," IMF Working Papers 05/231, International Monetary Fund.
- Andrew Kuritzkes & Til Schuermann & Scott Weiner, 2005. "Deposit Insurance and Risk Management of the U.S. Banking System: What is the Loss Distribution Faced by the FDIC?," Journal of Financial Services Research, Springer, vol. 27(3), pages 217-242, September.
- Arnaud Jobert & Janet Kong & Jorge A. Chan-Lau, 2004. "An Option-Based Approach to Bank Vulnerabilities in Emerging Markets," IMF Working Papers 04/33, International Monetary Fund.
- Allen N. Berger & Sally M. Davies & Mark J. Flannery, 2000.
"Comparing market and supervisory assessments of bank performance: who knows what when?,"
Federal Reserve Bank of Cleveland, pages 641-670.
- Berger, Allen N & Davies, Sally M & Flannery, Mark J, 2000. "Comparing Market and Supervisory Assessments of Bank Performance: Who Knows What When?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 641-67, August.
- Allen N. Berger & Sally M. Davies & Mark J. Flannery, 1998. "Comparing market and supervisory assessments of bank performance: who knows what when?," Finance and Economics Discussion Series 1998-32, Board of Governors of the Federal Reserve System (U.S.).
- Flannery, Mark J, 1998. "Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 273-305, August.
- Fons, Jerome S, 1987. " The Default Premium and Corporate Bond Experience," Journal of Finance, American Finance Association, vol. 42(1), pages 81-97, March.
- John Krainer & Jose A. Lopez, 2003. "How might financial market information be used for supervisory purposes?," Economic Review, Federal Reserve Bank of San Francisco, pages 29-45.
- Renzo G. Avesani & Jing Li & Antonio Garcia Pascual, 2006. "A New Risk Indicator and Stress Testing Tool: A Multifactor Nth-to-Default CDS Basket," IMF Working Papers 06/105, International Monetary Fund.
- Martin CihÃ¡k & Heiko Hesse, 2007. "Cooperative Banks and Financial Stability," IMF Working Papers 07/2, International Monetary Fund.
- Bongini, Paola & Laeven, Luc & Majnoni, Giovanni, 2002. "How good is the market at assessing bank fragility? A horse race between different indicators," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 1011-1028, May.
- Amadou N. R. Sy & Jorge A. Chan-Lau, 2006. "Distance-to-Default in Banking: A Bridge Too Far?," IMF Working Papers 06/215, International Monetary Fund.
- Yingbin Xiao & Dale F. Gray & Cheng Hoon Lim & Michael T. Gapen, 2004. "The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-wide Risk Transfer," IMF Working Papers 04/121, International Monetary Fund.
- Merton, Robert C, 1974.
"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,"
Journal of Finance,
American Finance Association, vol. 29(2), pages 449-70, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, vol. 46(4), pages 1223-42, September.
- Renzo G. Avesani, 2005. "FIRST: A Market-Based Approach to Evaluate Financial System Risk and Stability," IMF Working Papers 05/232, International Monetary Fund.
- Jeffery W. Gunther & Mark E. Levonian & Robert R. Moore, 2001. "Can the stock market tell bank supervisors anything they don't already know?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 2-9.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Andrea M. Maechler & Klaus Schaeck & Martin CihÃ¡k & StÃ©phanie Marie Stolz, 2009.
"Who Disciplines Bank Managers?,"
IMF Working Papers
09/272, International Monetary Fund.
- Ali, Asghar & Daly, Kevin, 2010. "Macroeconomic determinants of credit risk: Recent evidence from a cross country study," International Review of Financial Analysis, Elsevier, vol. 19(3), pages 165-171, June.
- Martin Saldías Zambrana, 2010.
"Systemic risk analysis using forward-looking distance-to-default series,"
1005, Federal Reserve Bank of Cleveland.
- Martín Saldías, 2012. "Systemic Risk Analysis using Forward-Looking Distance-to-Default Series," Working Papers w201216, Banco de Portugal, Economics and Research Department.
- Hassan Ghassan & Stefano Fachin & Abdelkarim Guendouz, 2013. "Financial Stability of Islamic and Conventional Banks in Saudi Arabia: a Time Series Analysis," DSS Empirical Economics and Econometrics Working Papers Series 2013/1, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.
- Casu, Barbara & Clare, Andrew & Saleh, Nashwa, 2011. "Towards a new model for early warning signals for systemic financial fragility and near crises: an application to OECD countries," MPRA Paper 37043, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Herrmannova).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.