Assessing the systemic risk of a heterogeneous portfolio of banks during the recent financial crisis

By Xin Huang, Hao Zhou, Haibin Zhu. 2009

245 citations recorded by the source corpus.

This paper extends the approach of measuring and stress-testing the systemic risk of a banking sector in Huang, Zhou, and Zhu (2009) to identifying various sources of financial instability and to allocating systemic risk to individual financial institutions. The systemic risk measure, defined as the insurance cost to protect against distressed losses in a banking system, is a risk-neutral concept of capital based on publicly available information that can be appropriately aggregated across different subsets. An application of our methodology to a portfolio of twenty-two major banks in Asia and the Pacific illustrates the dynamics of the spillover effects of the global financial crisis to the region. The increase in the perceived systemic risk, particularly after the failure of Lehman Brothers, was mainly driven by the heightened risk aversion and the squeezed liquidity. The analysis on the marginal contribution of individual banks to the systemic risk suggests that ``too-big-to-fail" is a valid concern from a macroprudential perspective of bank regulation.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/9dc7a34bb289c6734ff67a15ad07190b65cfa7d6

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Citations in the corpus

Systemic Risk and Bank Size (2018, unknown): “…importance and firm size is typically an important driver of systemic risk measures (see, for instance, De Jonghe, 2010; Hovakimian et al., 2012; Huang et al., 2012; Vallascas and Keasey, 2012; Zhang et al., 2015; Laeven et al., 2016; Sedunov, 2016), there is growing evidence that size may not…”
Measuring and testing for the systemically important financial institutions (2012, background): “Step back: estimation noise in portfolio risk Micro-prudential goal: • limit probability of a bank’s failure below a certain level: VaR Noise in estimates of: (i) exposure-specific PDs; (ii) asset-return correlations Estimation noise is part of the VaR: Löffler (2003), Gössl (2005), Tarashev (2010) ”
Systemic Risks and the Macroeconomy (2010, methodology): “See Sorge (2004) for a review of stress testing, and Huang, Zhou, and Zhu (2009a, 2009b) for recent contributions.”
Macroprudential Policy - A Literature Review (2012, unknown): “These contributions can inform the design and calibration of policy tools aimed at preventing that systemic stress can originate in these institutions (Huang et al, 2009).”
Implementing a Macroprudential Framework: Blending Boldness and Realism (2011, unknown): “And, based on these, they allow us to derive the marginal contribution of each institution to the corresponding systemic risk measure (eg, Tarashev et al (2009) and (2010), Huang et al (2010), Acharya et al (2010), Goodhart and Segoviano (2008)).”
Working Paper # 0001 January 5 , 2012 A Survey of Systemic Risk Analytics (2012, unknown): “Huang, Zhou, and Zhu (2009a) calculate a hypothetical insurance premium based on firms' equity prices and CDS spreads; they apply this to a sample of banks.”