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Measuring systemic risk across financial market infrastructures

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  • Li, Fuchun
  • Perez-Saiz, Hector

Abstract

We measure systemic risk in the network of financial market infrastructures (FMIs) as the probability that two or more FMIs have a large credit risk exposure to a common FMI participant. We construct indicators of credit risk exposures in three main Canadian FMIs and use multivariate extreme value methods to estimate this probability. We find large differences in the levels of systemic risk across participants. Conditional on the participant being distressed, we re-estimate these probabilities and find that some participants create large exposures to FMIs, resulting in a larger level of systemic risk than the rest of the participants. Our results suggest that an appropriate oversight of FMIs may benefit from an in-depth system-wide analysis, which may have useful implications for the macroprudential regulation of the financial system.

Suggested Citation

  • Li, Fuchun & Perez-Saiz, Hector, 2018. "Measuring systemic risk across financial market infrastructures," Journal of Financial Stability, Elsevier, vol. 34(C), pages 1-11.
  • Handle: RePEc:eee:finsta:v:34:y:2018:i:c:p:1-11
    DOI: 10.1016/j.jfs.2017.08.003
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    Citations

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    Cited by:

    1. Radoslav Raykov, 2019. "Systemic Risk and Collateral Adequacy," Staff Working Papers 19-23, Bank of Canada.
    2. Badarau, Cristina & Lapteacru, Ion, 2020. "Bank risk, competition and bank connectedness with firms: A literature review," Research in International Business and Finance, Elsevier, vol. 51(C).
    3. Biswas, Swarnava S. & Gómez, Fabiana, 2018. "Contagion through common borrowers," Journal of Financial Stability, Elsevier, vol. 39(C), pages 125-132.
    4. Qian, Qian & Yang, Yang & Gu, Jing & Feng, Hairong, 2019. "Information authenticity, spreading willingness and credit risk contagion – A dual-layer network perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 536(C).

    More about this item

    Keywords

    Credit risk exposure; Systemic risk; Financial stability; Financial market infrastructure; Extreme value theory; Clearing; Settlement;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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