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Systemic risk contributions

In: Macroprudential regulation and policy

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  • Xin Huang

    (University of Oklahoma)

  • Hao Zhou

    (Federal Reserve Board)

  • Haibin Zhu

    (Bank for International Settlements)

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Abstract

We adopt a systemic risk indicator measured by the price of insurance against systemic financial distress and assess individual banks' marginal contributions to the systemic risk. The methodology is applied using publicly available data to the 19 bank holding companies covered by the U.S. Supervisory Capital Assessment Program (SCAP), with the systemic risk indicator peaking around $1.1 trillion in March 2009. Our systemic risk contribution measure shows interesting similarity to and divergence from the SCAP expected loss measure. In general, we find that a bank's contribution to the systemic risk is roughly linear in its default probability but highly nonlinear with respect to institution size and asset correlation.

(This abstract was borrowed from another version of this item.)

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This chapter was published in:

  • Bank for International Settlements, 2011. "Macroprudential regulation and policy," BIS Papers, Bank for International Settlements, number 60, May.
    This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 60-05.

    Handle: RePEc:bis:bisbpc:60-05

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    1. 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.
    2. Huang, Xin & Zhou, Hao & Zhu, Haibin, 2012. "Assessing the systemic risk of a heterogeneous portfolio of banks during the recent financial crisis," Journal of Financial Stability, Elsevier, vol. 8(3), pages 193-205.
    3. Michael B. Gordy, 2002. "A risk-factor model foundation for ratings-based bank capital rules," Finance and Economics Discussion Series 2002-55, Board of Governors of the Federal Reserve System (U.S.).
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