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.
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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
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