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Systemic Risk And Financial Linkages Measurement in The Indonesian Banking

Author

Listed:
  • Sri Ayomi
  • Bambang Hermanto

Abstract

This paper measures the insolvency risk of bank in Indonesia. We apply Merton model to identify the probability of defaul tover 30 banks during the period of 2002-2013. This paper also identify role of financial linkage a cross banks on transmitting from one bank to another; which enable us to assess if the risk is systemic or not. The results showed the larger total asset of the bank, the larger they contribute to systemic risk.

Suggested Citation

  • Sri Ayomi & Bambang Hermanto, 2013. "Systemic Risk And Financial Linkages Measurement in The Indonesian Banking," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 16(2), pages 91-114, October.
    • Handle: RePEc:idn:journl:v:16:y:2013:i:2i:p:91-114
    DOI: https://doi.org/10.21098/bemp.v16i2.439
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    References listed on IDEAS

    as
    1. Acharya, Viral V., 2009. "A theory of systemic risk and design of prudential bank regulation," Journal of Financial Stability, Elsevier, vol. 5(3), pages 224-255, September.
    2. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 35, European Central Bank.
    3. M. Tudela & G. Young, 2005. "A Merton-Model Approach To Assessing The Default Risk Of Uk Public Companies," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(06), pages 737-761.
    4. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    5. Lehar, Alfred, 2005. "Measuring systemic risk: A risk management approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2577-2603, October.
    6. Rungporn Roengpitya & Phurichai Rungcharoenkitkul, 2010. "Measuring Systemic Risk And Financial Linkages In The Thai Banking System," Working Papers 2010-02, Monetary Policy Group, Bank of Thailand.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Conditional Value at Risk; Probability of Default; Systemic Risk and Financial Linkages; Value at Risk.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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