The Systemic Events Hypothesis

This article attempts to provide a theoretical framework for systemic risk assessment. We start from the fundamental definitions and build our way up to the chronology of systemic events and classification for financial crises, financial shocks, systemic crises, and systemic events. We detail each specific stage of a systemic crisis and finally propose guidelines for correctly measuring systemic risk. Eventually, we propose a brief empirical example of our framework using multiple systemic risk measures on major European and American financial institutions from 2006 to 2011. Our results show that the Subprime crisis displayed similar stages to the ones we proposed. Moreover, we propose specific timing for regulatory actions for mitigating systemic risk. Our framework does not invalidate most of the famous systemic risk measures proposed up to now but advocates that each of them only captured one dimension and hence, can not correctly describe systemic risk