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Systemic Risk Allocation for Systems with A Small Number of Banks

Author

Listed:
  • Xiao Qin
  • Chen Zhou

Abstract

This paper provides a new estimation method for the marginal expected shortfall (MES) based on multivariate extreme value theory. In contrast to previous studies, the method does not assume specific dependence structure among bank equity returns and is applicable to both large and small systems. Furthermore, our MES estimator inherits the theoretical additive property. Thus, it serves as a tool to allocate systemic risk. We apply the proposed method to 29 global systemically important financial institutions (G-SIFIs) to evaluate the cross sections and dynamics of the systemic risk allocation. We show that allocating systemic risk according to either size or individual risk is imperfect and can be unfair. Between the allocation with respect to individual risk and that with respect to size, the former is less unfair. On the time dimension, both allocation fairness across all the G-SIFIs has decreased since 2008.

Suggested Citation

  • Xiao Qin & Chen Zhou, 2013. "Systemic Risk Allocation for Systems with A Small Number of Banks," DNB Working Papers 378, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:378
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    File URL: https://www.dnb.nl/en/binaries/Working%20Paper%20378_tcm47-291376.pdf
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    References listed on IDEAS

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    Cited by:

    1. S. Tavolaro & F. Visnovsky, 2014. "What is the information content of the SRISK measure as a supervisory tool?," Débats économiques et financiers 10, Banque de France.

    More about this item

    Keywords

    Systemic risk allocation; marginal expected shortfall; systemically important financial institutions; extreme value theory;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • 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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