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Which are the SIFIs? A Component Expected Shortfall approach to systemic risk

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  • Banulescu, Georgiana-Denisa
  • Dumitrescu, Elena-Ivona

Abstract

This paper proposes a component approach to systemic risk which allows to decompose the risk of the aggregate financial system (measured by Expected Shortfall) while accounting for the firm characteristics. Developed by analogy with the Component Value-at-Risk concept, our new systemic risk measure, called Component ES, presents several advantages. It is a hybrid measure, which combines the Too Interconnected To Fail and the Too Big To Fail logics. CES relies only on publicly available daily data and encompasses the popular Marginal ES measure. CES can be used to assess the contribution of a firm to systemic risk at a precise date but also to forecast its contribution over a certain period. The empirical application verifies the ability of CES to identify the most systemically risky firms during the 2007–2009 financial crisis. We show that our measure identifies the institutions labeled as SIFIs by the Financial Stability Board.

Suggested Citation

  • Banulescu, Georgiana-Denisa & Dumitrescu, Elena-Ivona, 2015. "Which are the SIFIs? A Component Expected Shortfall approach to systemic risk," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 575-588.
  • Handle: RePEc:eee:jbfina:v:50:y:2015:i:c:p:575-588
    DOI: 10.1016/j.jbankfin.2014.01.037
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    Cited by:

    1. repec:eee:reveco:v:55:y:2018:i:c:p:273-284 is not listed on IDEAS
    2. Abedifar, Pejman & Giudici, Paolo & Hashem, Shatha Qamhieh, 2017. "Heterogeneous market structure and systemic risk: Evidence from dual banking systems," Journal of Financial Stability, Elsevier, vol. 33(C), pages 96-119.
    3. Asgharian, Hossein & Krygier, Dominika & Vilhelmsson, Anders, 2019. "Systemic Risk and Centrality Revisited: The Role of Interactions," Working Papers 2019:4, Lund University, Department of Economics.
    4. repec:spr:annopr:v:262:y:2018:i:2:d:10.1007_s10479-016-2113-8 is not listed on IDEAS
    5. repec:eee:ecmode:v:67:y:2017:i:c:p:275-284 is not listed on IDEAS
    6. Tatiana Gaelle Yongoua Tchikanda, 2017. "Systemic risk and individual risk: A trade-off?," EconomiX Working Papers 2017-16, University of Paris Nanterre, EconomiX.
    7. Mazzocchetti, Andrea & Lauretta, Eliana & Raberto, Marco & Teglio, Andrea & Cincotti, Silvano, 2018. "Systemic Financial Risk Indicators and Securitised Assets: an Agent-Based Framework," MPRA Paper 89779, University Library of Munich, Germany.
    8. Shaw, Frances & Dunne, Peter G., 2017. "Investment Fund Risk: The Tale in the Tails," Research Technical Papers 01/RT/17, Central Bank of Ireland.
    9. repec:agh:journl:v:18:y:2017:i:2:p:165-181 is not listed on IDEAS
    10. repec:eee:ecmode:v:67:y:2017:i:c:p:203-214 is not listed on IDEAS
    11. repec:eee:ememar:v:35:y:2018:i:c:p:1-18 is not listed on IDEAS
    12. repec:eee:intfin:v:57:y:2018:i:c:p:205-230 is not listed on IDEAS
    13. repec:eee:jbfina:v:91:y:2018:i:c:p:70-85 is not listed on IDEAS
    14. Domenico Di Gangi & Fabrizio Lillo & Davide Pirino, 2015. "Assessing systemic risk due to fire sales spillover through maximum entropy network reconstruction," Papers 1509.00607, arXiv.org, revised Jul 2018.

    More about this item

    Keywords

    Systemic risk; Component Expected Shortfall; Marginal Expected Shortfall; Forecasting;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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