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Systemic Risk 10 Years Later

Author

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  • Robert Engle

    (The Volatility Institute, Stern School of Business, New York University, New York, NY 10012, USA)

Abstract

Ten years ago, the financial crisis spurred research focused on systemic risk. This article examines the history and application of the SRISK measure, which was developed at that time and is now widely used in monitoring systemic risk around the globe. The concept is explained and a variety of ways to measure SRISK are developed. In this article, new results are presented on the uncertainty associated with the SRISK measure and on how it compares with other related measures from both academics and regulators. By focusing on the mechanism by which undercapitalization of the financial sector initiates a financial crisis, new research examines how the probability of a financial crisis is affected by the level of SRISK and, consequently, how much SRISK a country can stand without having a high probability of crisis. The model used to evaluate this probability recognizes the externalities between financial institutions that make an undercapitalized firm or country more fragile if other firms and countries are also undercapitalized.

Suggested Citation

  • Robert Engle, 2018. "Systemic Risk 10 Years Later," Annual Review of Financial Economics, Annual Reviews, vol. 10(1), pages 125-152, November.
    • Handle: RePEc:anr:refeco:v:10:y:2018:p:125-152
    DOI: 10.1146/annurev-financial-110217-023056
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    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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