A Systematic approach to identify systemically important firms
This paper uses the average of the percentile ranking of three measures of systemic risk - Granger Causality, Marginal Expected Shortfall, and Conditional Value at Risk - to calculate a single systemic risk index (SRI) for a lrm. The SRI is used to identify systemically important lrms (SIFs) among the 50 largest lrms in a quarter. This has the advantage of identifying SIFs on a regular basis using readily available data. The paper uses this approach to identify SIFs by SRI each quarter from 2000 to 2012, and lnds that the cumulative risk of the SIFs tracks the changes in systemic risk in India during the 2008 crisis. The paper also lnds merit in monitoring non-lnancial lrms by their SRI, particularly when bank loan portfolios have concentrated exposures in these firms.
|Date of creation:||Oct 2013|
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- Sedunov, John, 2016. "What is the systemic risk exposure of financial institutions?," Journal of Financial Stability, Elsevier, vol. 24(C), pages 71-87.
- Giglio, Stefano & Kelly, Bryan & Pruitt, Seth, 2016. "Systemic risk and the macroeconomy: An empirical evaluation," Journal of Financial Economics, Elsevier, vol. 119(3), pages 457-471.
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