Systemic risk measures: The simpler the better?

Rodríguez‐Moreno, María; Peña, Juan Ignacio

doi:10.1016/j.jbankfin.2012.07.010

Cited by 170 publications

(23 citation statements)

References 30 publications

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“…Further approaches include principal-component-based analysis, e.g. by Bisias et al (2012), Rodriguez-Moreno and Peña (2013) and others; statistical modelling based on default probabilities by Lehar (2005), Huang et al (2009), and others; graph theory and network topology, e.g. Boss et al (2006), Chan-Lau et al (2009), and Diebold and Yilmaz (2014).…”

Section: Introductionmentioning

confidence: 99%

TENET: Tail-Event driven NETwork risk

Härdle

2016

Journal of Econometrics

345

115

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Abstract CoVaR is a measure for systemic risk of the networked financial system conditional on institutions being under distress. The analysis of systemic risk is the focus of recent econometric analyzes and uses tail event and network based techniques. Here, in this paper we bring tail event and network dynamics together into one context. In order to pursue such joint efforts, we propose a semiparametric measure to estimate systemic interconnectedness across financial institutions based on tail-driven spillover effects in a high dimensional framework. The systemically important institutions are identified conditional to their interconnectedness structure. Methodologically, a variable selection technique in a time series setting is applied in the context of a single-index model for a generalized quantile regression framework. We could thus include more financial institutions into the analysis to measure their tail event interdependencies and, at the same time, be sensitive to non-linear relationships between them. Network analysis, its behaviour and dynamics, allows us to characterize the role of each financial industry group in 2007 -2012: the depositories received and transmitted more risk among other groups, the insurers were less affected by the financial crisis. The proposed TENET -Tail Event driven NETwork technique allows us to rank the Systemic Risk Receivers and Systemic Risk Emitters in the U.S. financial market. Permanent repository link:

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Section: Introductionmentioning

confidence: 99%

TENET: Tail-Event driven NETwork risk

Härdle

2016

Journal of Econometrics

345

115

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“…This spread captures the tensions between the financial and sovereign sectors of the European economy. This measure is comparable to the first component of the CDS portfolio of European banks in Rodríguez‐Moreno and Pena (), and it could be employed as a proxy for systemic risk. These yields are calculated as a composite yield of representative securities around the 1‐year maturity.…”

Section: Relationships Between Basis Swap Components and Macroeconomimentioning

confidence: 97%

Dissecting interbank risk using basis swap spreads

Lafuente

Petit

Ruíz³

et al. 2019

World Economy

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This paper analyses interbank risk using the information content of basis swap (BS) spreads, floating‐to‐floating interest rate swaps whose payments are associated with euro deposit rates for alternative tenors. To identify the impact of shocks affecting interbank risk, we propose an empirical model that decomposes BS quotes into their expected and unexpected components. These unobservable constituents of BS spreads are estimated by solving a signal extraction problem using a particle filter. We find that expected components covariate with aggregate liquidity and risk aversion while systemic risk arises as the main driver behind unexpected fluctuations. Our empirical findings suggest that macroprudential analysis emerges as a key device to ease asset pricing in a new multi‐curve scenario.

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“…This can be summarized as the risk of system-wide distress and economic damage. The system-wide distress has sometimes been defined as the failure of a significant part of financial institutions (Acharya et al, 2011;De Bandt and Hartmann, 2000); as correlated defaults of financial institutions over a short period of time (Billio et al, 2010); as an impairment of the financial system (Adrian and Brunnermeier, 2011); as the malfunctioning of the entire financial system (Bach and Nyuyen, 2012;Rodriguez-Moreno and Pena (2013); or as the loss of economic value or widespread loss of confidence in the financial system (Baur et al, 2003;Chen et al, 2013;Weiss, 2011 andWeiss and Mühlnickel, 2013).…”

Section: Broader Questions About Systemic Regulationmentioning

confidence: 99%

How Insurers Differ from Banks: A Primer in Systemic Regulation

Thimann

2014

SSRN Journal

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This paper aims at providing a conceptual distinction between banking and insurance with regard to systemic regulation. It discusses key differences and similarities as to how both sectors interact with the financial system. Insurers interact as financial intermediaries and through financial market investments, but do not share the features of banking that give rise to particular systemic risk in that sector, such as the institutional interconnectedness through the interbank market, the maturity transformation combined with leverage, the prevalence of liquidity risk and the operation of the payment system. The paper also draws attention to three salient features in insurance that need to be taken account in systemic regulation: the quasiabsence of leverage, the fundamentally different role of capital and the 'built-in bail-in' of a significant part of insurance liabilities through policy-holder participation. Based on these considerations, the paper argues that if certain activities were to give rise to concerns about systemic risk in the case of insurers, regulatory responses other than capital surcharges may be more appropriate. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior permission in writing of the publisher nor be issued to the public or circulated in any form other than that in which it is published.Requests for permission to reproduce any article or part of the Working Paper should be sent to the editor at the above address. This paper aims at providing a conceptual distinction between banking and insurance with regard to systemic regulation. It discusses key differences and similarities as to how both sectors interact with the financial system. Insurers interact as financial intermediaries and through financial market investments, but do not share the features of banking that give rise to particular systemic risk in that sector, such as the institutional interconnectedness through the interbank market, the maturity transformation combined with leverage, the prevalence of liquidity risk and the operation of the payment system. The paper also draws attention to three salient features in insurance that need to be taken account in systemic regulation: the quasi-absence of leverage, the fundamentally different role of capital and the 'built-in bail-in' of a significant part of insurance liabilities through policy-holder participation. Based on these considerations, the paper argues that if certain activities were to give rise to concerns about systemic risk in the case of insurers, regulatory responses other than capital surcharges may be more appropriate. Executive SummaryThe process of global regulation of systemically important financial institutions is still in full swing. Having completed the regulatory framework for systemically important banks, the Financial Stability Board (FSB) is turning to insurance companies.In 2013, the FSB designated nine insurance companies as systemically ...

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Systemic risk measures: The simpler the better?

Cited by 170 publications

References 30 publications

TENET: Tail-Event driven NETwork risk

TENET: Tail-Event driven NETwork risk

Dissecting interbank risk using basis swap spreads

How Insurers Differ from Banks: A Primer in Systemic Regulation

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