A systemic Risk Dashboard



We identify a bias in existing systemic risk measures based on the market value of equity (e.g., SRISK). This bias is theoretically relevant as it increases in the variance of the realised value of bank assets, which is a potentially important dimension of systemic risk. We show that rankings of banks based on such measures can actually be the reverse of the true rankings. We propose a methodology to address the issue, based on using debt spreads to obtain a better estimate of bank net worth in a systemic event. We then estimate and simulate a combined model for equity and CDS prices and derive a correction term. This term is economically significant and increases in period of stress, as suggested by the theory. We propose a new measure (SRISK2.0), which captures better differences in risks, and can be decomposed in a way that provides regulators with a systemic risk dashboard.”


*After the seminar we will have informal drinks (and snacks) at the Erasmus Paviljoen*