Journal of Financial Services Research

, Volume 42, Issue 1–2, pp 55–83 | Cite as

Systemic Risk Contributions

Article

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 loss estimates under stress test scenarios. 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 

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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of OklahomaNormanUSA
  2. 2.Risk Analysis Section, Federal Reserve BoardWashingtonUSA
  3. 3.J.P. Morgan Chase Bank, N.A.Hong KongChina

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