scholarly journals The multi-layer network nature of systemic risk and its implications for the costs of financial crises

2015 ◽  
Vol 20 ◽  
pp. 70-81 ◽  
Author(s):  
Sebastian Poledna ◽  
José Luis Molina-Borboa ◽  
Serafín Martínez-Jaramillo ◽  
Marco van der Leij ◽  
Stefan Thurner
Keyword(s):  
Systemic Risk ◽  
Financial Crises

scholarly journals Systemic Risk Indicators Based on Nonlinear PolyModel

2018 ◽  
Vol 12 (1) ◽  
pp. 2 ◽  
Author(s):  
Xingxing Ye ◽  
Raphael Douady
Keyword(s):  
Financial Market ◽  
Systemic Risk ◽  
Financial Crises ◽  
Economic Benefit ◽  
Risk Indicators ◽  
Large Set ◽  
Theoretical Simulation ◽  
Nonlinear Factor Analysis ◽  
Nonlinear Approach ◽  
Covered Call

The global financial market has become extremely interconnected as it demonstrates strong nonlinear contagion in times of crisis. As a result, it is necessary to measure financial systemic risk in a comprehensive and nonlinear approach. By establishing a large set of risk factors as the main bones of the financial market network and applying nonlinear factor analysis in the form of so-called PolyModel, this paper proposes two systemic risk indicators that can prognosticate the advent and trace the development of financial crises. Through financial network analysis, theoretical simulation, empirical data analysis and final validation, we argue that the indicators suggested in this paper are proved to be very effective in forecasting and tracing the financial crises from 1998 to 2017. The economic benefit of the indicator is evidenced by the enhancement of a protective put/covered call strategy on major stock markets.

scholarly journals Retrospectives: Regulating Banks versus Managing Liquidity: Jeremy Bentham and Henry Thornton in 1802

2020 ◽  
Vol 34 (4) ◽  
pp. 195-209
Author(s):  
John Berdell ◽  
Thomas Mondschean
Keyword(s):  
Systemic Risk ◽  
Financial Crises ◽  
Financial System ◽  
Jeremy Bentham ◽  
Credit System ◽  
Lender Of Last Resort ◽  
Financial Systems ◽  
Bank Regulations ◽  
Systemic Crisis ◽  
The Stability

At nearly the same moment, Jeremy Bentham and Henry Thornton adopted diametrically opposed approaches to stabilizing the financial system. Henry Thornton eloquently defended the Bank of England’s actions as the lender of last resort and saw its discretionary management of liquidity as the key stabilizer of the credit system. In contrast, Jeremy Bentham advocated the imposition of strict bank regulations and examinations, without which, he predicted, Britain would soon experience a systemic crisis—which he called “universal bankruptcy.” There are strong parallels but also dramatic differences with our recent attempts to reduce systemic risk within financial systems. The Basel III bank regulatory framework effectively intertwines Bentham’s and Thornton’s diametrically opposed approaches to stabilizing banks. Yet Bentham’s and Thornton’s concerns regarding the stability of the wider financial system remain alive today due to financial innovation and the politics of responding to financial crises.

scholarly journals Measuring the probability of a financial crisis

2019 ◽  
Vol 116 (37) ◽  
pp. 18341-18346 ◽  
Author(s):  
Robert F. Engle ◽  
Tianyue Ruan
Keyword(s):  
Financial Crisis ◽  
Systemic Risk ◽  
Financial Crises ◽  
Risk Measures ◽  
Financial Sector ◽  
Developed Countries ◽  
Financial Firms ◽  
Capacity Measure ◽  
Natural Response ◽  
Tail Events

When financial firms are undercapitalized, they are vulnerable to external shocks. The natural response to such vulnerability is to reduce leverage, and this can endogenously start a financial crisis. Excessive credit growth, the main cause of financial crises, is reflected in the undercapitalization of the financial sector. Market-based measures of systemic risk such as SRISK, which stands for systemic risk, enable monitoring how such weakness emerges and progresses in real time. In this paper, we develop quantitative estimates of the level of systemic risk in the financial sector that precipitates a financial crisis. Common approaches to reduce leverage correspond to specific scaling of systemic risk measures. In an econometric framework that recognizes financial crises represent left tail events for the economy, we estimate the relationship between SRISK and the financial crisis severity for 23 developed countries. We develop a probability of crisis measure and an SRISK capacity measure based on our estimates. Our analysis highlights the important global externality whereby the risk of a crisis in one country is strongly influenced by the undercapitalization of the rest of the world.

Systemic Risk in Financial Services

2011 ◽  
Vol 16 (2) ◽  
pp. 195-300 ◽  
Author(s):  
D. Besar ◽  
P. Booth ◽  
K. K. Chan ◽  
A. K. L. Milne ◽  
J. Pickles
Keyword(s):  
Financial Markets ◽  
Systemic Risk ◽  
Financial Services ◽  
Financial Crises ◽  
Financial System ◽  
Policy Makers ◽  
Large Aggregate ◽  
The Past ◽  
Markets And Institutions ◽  
Aggregate System

AbstractThe current banking crisis has reminded us of how risks materialising in one part of the financial system can have a widespread impact, affecting other financial markets and institutions and the broader economy. This paper, prepared on behalf of the Actuarial Profession, examines how such events have an impact on the entire financial system and explores whether such disturbances may arise within the insurance and pensions sectors as well as within banking. The paper seeks to provide an overview of a number of banking and other financial crises which have occurred in the past, illustrated by four case studies. It discusses what constitutes asystemicevent and what distinguishes it from a large aggregate system wide shock. Finally, it discusses how policy-makers can respond to the risk of such systemic financial failures.

scholarly journals SYSTEMIC RISK IN TAIWAN STOCK MARKET

2012 ◽  
Vol 13 (5) ◽  
pp. 895-914 ◽  
Author(s):  
Her-Jiun Sheu ◽  
Chien-Ling Cheng
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Systemic Risk ◽  
Financial Crises ◽  
Idiosyncratic Risk ◽  
Risk Indicators ◽  
2008 Financial Crisis ◽  
Independent Variables ◽  
The Impact ◽  
Dot Com

Recent financial crises resulted from systemic risk caused by idiosyncratic distress. In this research, taking Taiwan stock market as an example and collecting data from 2000 to 2010 which contained the 2001 dot-com bubble and the 2007–2009 financial crisis, we adopt the CoVaR model to empirically explore the impact of sector-specific idiosyncratic risk on the systemic risk of the system and attempt to investigate the links between financial crises, systemic risk and the idiosyncratic risk of a sector-specific anomaly. The result showed sector-specific marginal CoVaR, i.e., ΔCoVaR, perfectly explained Taiwan stock market disturbance during the 2001 dot-com bubble and 2007–2008 financial crisis. Thus, by identifying the larger ΔCoVaR sectors, i.e. the systemic importance sectors, and by exploring the risk indicators, independent variables, of these systemic importance sectors, investors could practically employ the sector-specific ΔCoVaR measure to deepen the systemic risk scrutiny from a macro into a micro prudential perspective.

Macroprudential Policy - An Organizing Framework

Policy Papers ◽  
2011 ◽  
Vol 11 (17) ◽  
Author(s):  
Keyword(s):  
Systemic Risk ◽  
Financial Crises ◽  
Financial Stability ◽  
Macroprudential Policy ◽  
Macroeconomic Policies ◽  
Prudential Regulation ◽  
Clear Separation ◽  
The Past ◽  
Regulation And Supervision ◽  
Global Nature

Macroprudential policy is a complement to microprudential policy and it interacts with other types of public policy that have an impact on systemic financial stability. Indeed, prudential regulation, as carried out in the past, also had some macroprudential aspects, and the recent crisis has reinforced this focus; hence, a clear separation between “micro” and “macro” prudential, if useful conceptually, is difficult to delineate in practice. Moreover, no matter how different policy mandates are structured, financial stability tends to be a common responsibility, reflecting the far reaching consequences of financial crises. This calls for coordination across policies, to ensure that systemic risk is comprehensively addressed. Equally important, macroprudential policy is no substitute for sound policies more broadly, including, in particular, strong prudential regulation and supervision, and sound macroeconomic policies. Operational independence in other policy areas, including monetary and microprudential policy, should not be undermined in the name of macroprudential policy. Finally, given the global nature of the financial system, the multilateral aspects of macroprudential policy will need to be fully considered—an important aspect that is only touched upon in this paper.

Systemic Risk in Banking after the Great Financial Crisis

2019 ◽  
pp. 846-884
Author(s):  
Olivier De Bandt ◽  
Philipp Hartmann
Keyword(s):  
Financial Crisis ◽  
Conceptual Framework ◽  
Systemic Risk ◽  
Financial Crises ◽  
Empirical Literature ◽  
Aggregate Shocks ◽  
The Great Depression ◽  
Ex Post ◽  
Systemic Risks ◽  
Systemic Crisis

In this chapter we present a comprehensive review of systemic risk in banking, as the primary ingredient for understanding financial crises that have severe adverse effects on the macroeconomy (such as the Great Depression or the recent Great Financial Crisis). The first part of the chapter develops a conceptual framework that distinguishes three main forms of systemic risk: contagion, aggregate shocks, and the endogenous build-up and unraveling of widespread financial imbalances (such as credit booms leading to debt overhangs). Ex ante (preventive) policies, notably macroprudential regulation and supervision, and ex post (crisis management and resolution) policies to contain systemic risks and financial crises are also discussed. The second and third parts of the chapter review the existing theoretical and empirical literature about systemic risk, using the previously described conceptual framework and making reference to features of the systemic crisis that started in the summer of 2007.

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