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Measuring systemic risk contribution: The leave-one-out z-score method

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  • Li, Xiping
  • Tripe, David
  • Malone, Chris
  • Smith, David

Abstract

We propose a new systemic risk measure based on the z-score, which defines a leave-one-out (LOO) contribution to systemic risk. The LOO z-score measure quantifies the systemic risk contribution of individual banks by the difference between the joint risk-taking of a banking system and the risk-taking of the same system when excluding a bank. The accounting-based LOO z-score measure can be used as a complement to market-based systemic risk measures, and it can also assess systemic risk contribution for unlisted banks. Empirical results show that the LOO z-score measure can identify the four largest New Zealand banks as systemically important.

Suggested Citation

  • Li, Xiping & Tripe, David & Malone, Chris & Smith, David, 2020. "Measuring systemic risk contribution: The leave-one-out z-score method," Finance Research Letters, Elsevier, vol. 36(C).
    • Handle: RePEc:eee:finlet:v:36:y:2020:i:c:s1544612319303149
    DOI: 10.1016/j.frl.2019.101316
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    References listed on IDEAS

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    1. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2017. "Measuring Systemic Risk," The Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 2-47.
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    Cited by:

    1. Juan David Vega Baquero & Miguel Santolino, 2021. ""Too big to fail? An analysis of the Colombian banking system through compositional data"," IREA Working Papers 202111, University of Barcelona, Research Institute of Applied Economics, revised Apr 2021.
    2. Hafeez, Bilal & Li, Xiping & Kabir, M. Humayun & Tripe, David, 2022. "Measuring bank risk: Forward-looking z-score," International Review of Financial Analysis, Elsevier, vol. 80(C).
    3. Mohamed Sami Ben Ali, 2022. "Digitalization and Banking Crisis: A Nonlinear Relationship?," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(2), pages 421-435, June.
    4. Vega Baquero, Juan David & Santolino, Miguel, 2022. "Too big to fail? An analysis of the Colombian banking system through compositional data," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(2).

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    More about this item

    Keywords

    Systemic risk contribution; Leave-one-out; Z-score;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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