Testing the systemic risk differences in banks

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Title: Testing the systemic risk differences in banks
ISBN: 978-952-323-234-1
Author: Jokivuolle, Esa ; Tunaru, Radu ; Vioto, Davide
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2018
Series number: 13/2018
Year of publication: 2018
Publication date: 1.6.2018
Pages: 56
Subject (yso): pankit; riskit; testaus; mittaus
Keywords: järjestelmäriskit
JEL: G01; G32
Other keywords: Systemic risk measures; Systemic risk ranking validation; Dominance tests; Confidence intervals; Financial stability; Concordance measures
Abstract: This paper contains a testing framework for the reliability of systemic risk measurement of banks, using the three leading market-based measures of systemic risk. We test whether the difference within the same category and across dfferent categories of systemic risk of individual banks is signifcant. We find that in general the systemic risk categories defined by the Financial Stability Board are dfferent from those constructed in a full pairwise comparison approach based on the market measures. Moreover, these dfferences were more pronounced during episodes of high market turbulence.To account for model risk we introduce a more robust ranking method based on nonparametric confidence intervals. We show that there is a large number of banks with overlapping confidence intervals of their market-based systemic risk measures.Further, similarity measures indicate that the scoring based rankings are not perfectly aligned with rankings produced by market based systemic risk measures.
Rights: https://helda.helsinki.fi/bof/copyright

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