Systemic Risk Contributions

44 Pages Posted: 29 Jul 2010 Last revised: 29 Oct 2011

See all articles by Xin Huang

Xin Huang

Board of Governors of the Federal Reserve System

Hao Zhou

Tsinghua University - PBC School of Finance; SUSTech Business School

Haibin Zhu

Bank for International Settlements (BIS)

Date Written: May 17, 2011

Abstract

We adopt a systemic risk indicator measured by the price of insurance against systemic financial distress and assess individual banks’ marginal contributions to the systemic risk. The methodology is applied using publicly available data to the 19 bank holding companies covered by the U.S. Supervisory Capital Assessment Program (SCAP), with the systemic risk indicator peaking around $1.1 trillion in March 2009. Our systemic risk contribution measure shows interesting similarity to and divergence from the SCAP expected loss measure. In general, we find that a bank’s contribution to the systemic risk is roughly linear in its default probability but highly nonlinear with respect to institution size and asset correlation.

Keywords: Distress Insurance Premium, Systemic Risk, Macroprudential Regulation, Large Complex Financial Institution, Too-Big-to-Fail, Too-Connected-to-Fail.

JEL Classification: G21, G28, G14

Suggested Citation

Huang, Xin and Zhou, Hao and Zhu, Haibin, Systemic Risk Contributions (May 17, 2011). Available at SSRN: https://ssrn.com/abstract=1650436 or http://dx.doi.org/10.2139/ssrn.1650436

Xin Huang

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Hao Zhou (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing, 100083
China
+86-10-62790655 (Phone)

SUSTech Business School ( email )

1088 Xueyuan Avenue, Nanshan District
Southern University of Science and Technology
Shenzhen, Guangdong 518055
China

Haibin Zhu

Bank for International Settlements (BIS) ( email )

Hong Kong
Hong Kong
852 2878 7145 (Phone)
852 2878 7123 (Fax)

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