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A PCA Approach to Common Risk Exposures in the Chilean Banking System

  • Diego Avanzini
  • Alejandro Jara

This paper studies three related aspects of the Chilean banking’s systemic risk: (i) to what extent the degree of common risk exposure in the Chilean banking system has changed over the past decades, (ii) during which periods this exposure increased the most, and (iii) when this degree of commonality became a systemic concern. Additionally, it identifies systemically important financial institutions in Chile based on their contribution to the degree of common risk exposure. It finds that prior to the 2008-09 global financial crisis the degree of common risk exposure in Chile increased significantly, and that the banks that contributed the most were not necessarily the biggest ones in size, as measured by their assets share.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 707.

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Date of creation: Dec 2013
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Handle: RePEc:chb:bcchwp:707
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  1. Acharya, Viral V & Pedersen, Lasse H & Philippon, Thomas & Richardson, Matthew P, 2012. "Measuring Systemic Risk," CEPR Discussion Papers 8824, C.E.P.R. Discussion Papers.
  2. Antonio Ahumada & Jorge Marshall, 2001. "The banking industry in Chile: competition, consolidation and systemic stability," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking industry in the emerging market economies: competition, consolidation and systemic stability, volume 4, pages 45-53 Bank for International Settlements.
  3. Pukthuanthong, Kuntara & Roll, Richard, 2009. "Global market integration: An alternative measure and its application," Journal of Financial Economics, Elsevier, vol. 94(2), pages 214-232, November.
  4. Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2010. "Attributing systemic risk to individual institutions," BIS Working Papers 308, Bank for International Settlements.
  5. 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.
  6. Tobias Adrian & Markus K. Brunnermeier, 2008. "CoVaR," Staff Reports 348, Federal Reserve Bank of New York.
    • Tobias Adrian & Markus K. Brunnermeier, 2011. "CoVaR," NBER Working Papers 17454, National Bureau of Economic Research, Inc.
  7. Ricardo J. Caballero, 2010. "The "Other" Imbalance and the Financial Crisis," NBER Working Papers 15636, National Bureau of Economic Research, Inc.
  8. Jorge A. Chan-Lau, 2010. "Regulatory Capital Charges for too-Connected-To-Fail Institutions; A Practical Proposal," IMF Working Papers 10/98, International Monetary Fund.
  9. Nikola Tarashev & Mathias Drehmann, 2011. "Measuring the systemic importance of interconnected banks," BIS Working Papers 342, Bank for International Settlements.
  10. Li, Baibing & Martin, Elaine B. & Morris, A. Julian, 2002. "On principal component analysis in L1," Computational Statistics & Data Analysis, Elsevier, vol. 40(3), pages 471-474, September.
  11. Anginer, Deniz & Demirguc-Kunt, Asli, 2014. "Has the global banking system become more fragile over time?," Journal of Financial Stability, Elsevier, vol. 13(C), pages 202-213.
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