A Theoretical and Empirical Comparison of Systemic Risk Measures
AbstractWe derive several popular systemic risk measures in a common framework and show that they can be expressed as transformations of market risk measures (e.g., beta). We also derive conditions under which the different measures lead to similar rankings of systemically important financial institutions (SIFIs). In an empirical analysis of US financial institutions, we show that (1) different systemic risk measures identify different SIFIs and that (2) firm rankings based on systemic risk estimates mirror rankings obtained by sorting firms on market risk or liabilities. One-factor linear models explain most of the variability of the systemic risk estimates, which indicates that systemic risk measures fall short in capturing the multiple facets of systemic risk.
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Date of creation: 18 Jun 2013
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Banking Regulation; Systemically Important Financial Firms; Marginal Expected; Shortfall; SRISK; CoVaR; Systemic vs. Systematic Risk.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-BAN-2012-11-11 (Banking)
- NEP-FMK-2012-11-11 (Financial Markets)
- NEP-RMG-2012-11-11 (Risk Management)
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