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Back to the future: Backtesting systemic risk measures during historical bank runs and the great depression

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  • Brownlees, Christian
  • Chabot, Ben
  • Ghysels, Eric
  • Kurz, Christopher

Abstract

We evaluate the performance of two popular systemic risk measures, CoVaR and SRISK, during eight financial panics in the era before FDIC insurance. Bank stock price and balance sheet data were not readily available for this period. We rectify this shortcoming by constructing a novel dataset for the New York banking system before 1933. Our evaluation exercise focuses on two challenges: ranking systemically important financial institutions (SIFIs) and financial crisis prediction. We find that CoVaR and SRISK meet the SIFI ranking challenge. That is, they help identify systemic institutions in periods of distress beyond what is explained by standard risk measures up to six months before panics. In contrast, aggregate CoVaR and SRISK are only somewhat effective at predicting financial crises.

Suggested Citation

  • Brownlees, Christian & Chabot, Ben & Ghysels, Eric & Kurz, Christopher, 2020. "Back to the future: Backtesting systemic risk measures during historical bank runs and the great depression," Journal of Banking & Finance, Elsevier, vol. 113(C).
  • Handle: RePEc:eee:jbfina:v:113:y:2020:i:c:s0378426620300030
    DOI: 10.1016/j.jbankfin.2020.105736
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    References listed on IDEAS

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    Cited by:

    1. Baumöhl, Eduard & Bouri, Elie & Hoang, Thi-Hong-Van & Shahzad, Syed Jawad Hussain & Výrost, Tomáš, 2020. "Increasing systemic risk during the Covid-19 pandemic: A cross-quantilogram analysis of the banking sector," EconStor Preprints 222580, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    Systemic Risk; Financial Crises; Risk Measures;

    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
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913

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