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Systemic Risk Contributions

Author

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  • Xin Huang

    ()

  • Hao Zhou

    ()

  • Haibin Zhu

    ()

Abstract

We adopt a systemic risk indicator measured by the price of insurance against systemic financial distress and assess individual banks' marginal contributions to the systemic risk. The methodology is applied using publicly available data to the 19 bank holding companies covered by the U.S. Supervisory Capital Assessment Program (SCAP), with the systemic risk indicator peaking around $1.1 trillion in March 2009. Our systemic risk contribution measure shows interesting similarity to and divergence from the SCAP expected loss measure. In general, we find that a bank's contribution to the systemic risk is roughly linear in its default probability but highly nonlinear with respect to institution size and asset correlation.
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Suggested Citation

  • Xin Huang & Hao Zhou & Haibin Zhu, 2012. "Systemic Risk Contributions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 42(1), pages 55-83, October.
    • Handle: RePEc:kap:jfsres:v:42:y:2012:i:1:p:55-83
    DOI: 10.1007/s10693-011-0117-8
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    File URL: http://hdl.handle.net/10.1007/s10693-011-0117-8
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    Other versions of this item:

    • Xin Huang & Hao Zhou & Haibin Zhu, 2011. "Systemic risk contributions," BIS Papers chapters,in: Bank for International Settlements (ed.), Macroprudential regulation and policy, volume 60, pages 36-43 Bank for International Settlements.

    References listed on IDEAS

    as
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    16. Lehar, Alfred, 2005. "Measuring systemic risk: A risk management approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2577-2603, October.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Distress insurance premium; Systemic risk; Macroprudential regulation; Large complex financial institution; Too-big-to-fail; Too-connected-to-fail; G21; G28; G14;

    JEL classification:

    • 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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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