Estimating systemic risk in the international financial system

Bartram, Söhnke M.; Brown, Gregory W.; Hund, John

doi:10.1016/j.jfineco.2006.10.001

Cited by 122 publications

(53 citation statements)

References 42 publications

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“…10 Drehmann and Tarashev (2011) who show that systemic importance depends strongly on bank relations in the interbank market and that different risk measures lead to substantial differences in assessments on contribu-7 An overview on these metrics is given in Hansen (2013). Early analyses of systemic risk include Bartram et al (2007) and Lehar (2005). More recent noticeable market-based analyses include, but are not limited to, Acharya et al (2012), Huang et al (2009), Huang et al (2012, López-Espinosa et al (2013), Saldías (2013), and Suh (2012).…”

Section: Introductionmentioning

confidence: 99%

Systemic risk in an interconnected banking system with endogenous asset markets

Bluhm

Krahnen

2014

Journal of Financial Stability

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Section: Introductionmentioning

confidence: 99%

Systemic risk in an interconnected banking system with endogenous asset markets

Bluhm

Krahnen

2014

Journal of Financial Stability

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“…It is thus reasonable to conclude that if each bank becomes less risky due to diversification then the financial system should become more stable. Moreover, several reports before the 2007 financial crisis found little evidence for a systemic breakdown of the financial system owing to the high diversification levels at individual banks due to the extent of financial innovation (Bartram et al 2007;Elsinger et al 2006;Furfine 2003). However, the financial system still came close to near collapse even though banks, especially the big ones, had become largely diversified.…”

Section: Introductionmentioning

confidence: 99%

Understanding the consequences of diversification on financial stability

Banwo

Harrald

Medda

2018

J Econ Interact Coord

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In this paper, we study the consequences of diversification on financial stability and social welfare using an agent based model that couples the real economy and a financial system. We validate the model against its ability to reproduce several stylized facts reported in real economies. We find that the risk of an isolated bank failure (i.e. idiosyncratic risk) is decreasing with diversification. In contrast, the probability of joint failures (i.e. systemic risk) is increasing with diversification which results in more downturns in the real sector. Additionally, we find that the system displays a "robust yet fragile" behaviour particularly for low diversification. Moreover, we study the impact of introducing preferential attachment into the lending relationships between banks and firms. Finally, we show that a regulatory policy that promotes bank-firm credit transactions that reduce similarity between banks can improve financial stability whilst permitting diversification.

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“…Another measurement approach was undertaken by Bartram, Brown and Hund (2007), but only two banks were considered for SA and no explicit results were reported.…”

Section: Introductionmentioning

confidence: 99%

Measuring the systemic risk in the South African banking sector

Foggitt

Heymans

Vuuren

et al. 2017

SAJEMS

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Background: In the aftermath of the sub-prime crisis, systemic risk has become a greater priority for regulators, with the National Treasury (2011) stating that regulators should proactively monitor changes in systemic risk.Aim: The aim is to quantify systemic risk as the capital shortfall an institution is likely to experience, conditional to the entire financial sector being undercapitalised.Setting: We measure the systemic risk index (SRISK) of the South African (SA) banking sector between 2001 and 2013.Methods: Systemic risk is measured with the SRISK.Results: Although the results indicated only moderate systemic risk in the SA financial sector over this period, there were significant spikes in the levels of systemic risk during periods of financial turmoil in other countries. Especially the stock market crash in 2002 and the subprime crisis in 2008. Based on our results, the largest contributor to systemic risk during quiet periods was Investec, the bank in our sample which had the lowest market capitalisation. However, during periods of financial turmoil, the contributions of other larger banks increased markedly.Conclusion: The implication of these spikes is that systemic risk levels may also be highly dependent on external economic factors, in addition to internal banking characteristics. The results indicate that the economic fundamentals of SA itself seem to have little effect on the amount of systemic risk present in the financial sector. A more significant relationship seems to exist with the stability of the financial sectors in foreign countries. The implication therefore is that complying with individual banking regulations, such as Basel, and corporate governance regulations promoting ethical behaviour, such as King III, may not be adequate. It is therefore proposed that banks should always have sufficient capital reserves in order to mitigate the effects of a financial crisis in a foreign country. The use of worst-case scenario analyses (such as those in this study) could aid in determining exactly how much capital banks could need in order to be considered sufficiently capitalised during a financial crisis, and therefore safe from systemic risk.

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Estimating systemic risk in the international financial system

Cited by 122 publications

References 42 publications

Systemic risk in an interconnected banking system with endogenous asset markets

Systemic risk in an interconnected banking system with endogenous asset markets

Understanding the consequences of diversification on financial stability

Measuring the systemic risk in the South African banking sector

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