IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/61214.html
   My bibliography  Save this paper

The concept of systemic risk

Author

Listed:
  • Smaga, Pawel

Abstract

The aim of the study is to analyze the concept of systemic risk. The study reviews a multitude of systemic risk definitions in the literature. In addition, the paper identifies factors that contribute to the build-up of systemic risk (vulnerabilities), the spreading of contagion and provides a conceptual blueprint linking these phenomena. The author proposes to define systemic risk as the risk that a shock will result in such a significant materialization of (e.g. macrofinancial) imbalances that it will spread on the scale impairing the functioning of financial system and to the extent that it adversely affects the real economy (e.g. economic growth). The blueprint intends to break down and clearly categorize the processes of accumulation, materialization and spreading of systemic risk. This should in turn facilitate its identification and subsequent mitigation by assigning appropriate preventive macroprudential measures. As an example, the blueprint is used to analyze systemic risk stemming from FX lending in CEE countries.

Suggested Citation

  • Smaga, Pawel, 2014. "The concept of systemic risk," LSE Research Online Documents on Economics 61214, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:61214
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/61214/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 35, European Central Bank.
    2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    3. Mr. Gianni De Nicolo & Mr. Giovanni Favara & Mr. Lev Ratnovski, 2012. "Externalities and Macroprudential Policy," IMF Staff Discussion Notes 2012/005, International Monetary Fund.
    4. Dimitrios Bisias & Mark Flood & Andrew W. Lo & Stavros Valavanis, 2012. "A Survey of Systemic Risk Analytics," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 255-296, October.
    5. Sander Oosterloo & Jakob de Haan, 2003. "A Survey of Institutional Frameworks for Financial Stability," DNB Occasional Studies 104, Netherlands Central Bank, Research Department.
    6. George G. Kaufman, 1992. "Bank contagion: theory and evidence," Working Paper Series, Issues in Financial Regulation 92-13, Federal Reserve Bank of Chicago.
    7. Martínez-Jaramillo, Serafín & Pérez, Omar Pérez & Embriz, Fernando Avila & Dey, Fabrizio López Gallo, 2010. "Systemic risk, financial contagion and financial fragility," Journal of Economic Dynamics and Control, Elsevier, vol. 34(11), pages 2358-2374, November.
    8. George Sheldon & Martin Maurer, 1998. "Interbank Lending and Systemic Risk: An Empirical Analysis for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(IV), pages 685-704, December.
    9. Gai, Prasanna, 2013. "Systemic Risk: The Dynamics of Modern Financial Systems," OUP Catalogue, Oxford University Press, number 9780199544493.
    10. Rodrigo Cifuentes, 2003. "Banking Concentration: Implications for Systemic Risk and Safety Net Design," Working Papers Central Bank of Chile 231, Central Bank of Chile.
    11. Gabriele Galati & Richhild Moessner, 2013. "Macroprudential Policy – A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 27(5), pages 846-878, December.
    12. Erlend Nier, 2009. "Financial Stability Frameworks and the Role of Central Banks: Lessons From the Crisis," IMF Working Papers 2009/070, International Monetary Fund.
    13. Zigrand, Jean-Pierre, 2014. "Systems and systemic risk in finance and economics," LSE Research Online Documents on Economics 61220, London School of Economics and Political Science, LSE Library.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ebrahimi Kahou, Mahdi & Lehar, Alfred, 2017. "Macroprudential policy: A review," Journal of Financial Stability, Elsevier, vol. 29(C), pages 92-105.
    2. Silva, Walmir & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2017. "An analysis of the literature on systemic financial risk: A survey," Journal of Financial Stability, Elsevier, vol. 28(C), pages 91-114.
    3. Ellis, Scott & Sharma, Satish & Brzeszczyński, Janusz, 2022. "Systemic risk measures and regulatory challenges," Journal of Financial Stability, Elsevier, vol. 61(C).
    4. ZELDEA, Cristina Georgiana, 2019. "Systemic Risk: An Overview," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 23(3), pages 34-48, September.
    5. Mistrulli, Paolo Emilio, 2011. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1114-1127, May.
    6. Degryse, H.A. & Nguyen, G., 2004. "Interbank Exposures : An Empirical Examination of Systemic Risk in the Belgian Banking System," Other publications TiSEM 24d7f8a9-0f7c-411a-843c-c, Tilburg University, School of Economics and Management.
    7. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007. "Network models and financial stability," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2033-2060, June.
    8. Reint Gropp & Marco Lo Duca & Jukka Vesala, 2009. "Cross-Border Bank Contagion in Europe," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 97-139, March.
    9. Bernal, Oscar & Gnabo, Jean-Yves & Guilmin, Grégory, 2014. "Assessing the contribution of banks, insurance and other financial services to systemic risk," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 270-287.
    10. Schüler, Martin & Schröder, Michael, 2003. "Systemic Risk in European Banking: Evidence from Bivariate GARCH Models," ZEW Discussion Papers 03-11, ZEW - Leibniz Centre for European Economic Research.
    11. Giampaolo Gabbi & Alesia Kalbaska & Alessandro Vercelli, 2014. "Factors generating and transmitting the financial crisis: The role of incentives: securitization and contagion," Working papers wpaper56, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    12. Jeong-Bon Kim & Li Li & Mary L. Z. Ma & Frank M. Song, 2013. "CEO Option Compensation, Risk-Taking Incentives, and Systemic Risk in the Banking Industry," Working Papers 182013, Hong Kong Institute for Monetary Research.
    13. Iman van Lelyveld & Franka Liedorp, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
    14. Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2018. "Measuring systemic vulnerability in European banking systems," Journal of Financial Stability, Elsevier, vol. 36(C), pages 279-292.
    15. Schüler, Martin, 2003. "How Do Banking Supervisors Deal with Europe-wide Systemic Risk?," ZEW Discussion Papers 03-03, ZEW - Leibniz Centre for European Economic Research.
    16. Claudio Borio, 2011. "Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 87-117, December.
    17. Javier Márquez Diez Canedo & Serafín Martínez Jaramillo, 2009. "A network model of systemic risk: stress testing the banking system1," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 16(1‐2), pages 87-110, January.
    18. Lukas Scheffknecht, 2013. "Contextualizing Systemic Risk," ROME Working Papers 201317, ROME Network.
    19. Michiel Bijlsma & Wim Suyker, 2008. "The credit crisis and the Dutch economy... in eight frequently asked questions," CPB Memorandum 210.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    20. Olivier de Bandt & Jean-Cyprien Héam & Claire Labonne & Santiago Tavolaro, 2015. "La mesure du risque systémique après la crise financière," Revue économique, Presses de Sciences-Po, vol. 66(3), pages 481-500.

    More about this item

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:61214. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.