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Systemic Risk: A Survey

Olivier de Bandt

Banque de France - Economic Study and Research Division

Philipp Hartmann

European Central Bank (ECB); Centre for Economic Policy Research (CEPR) - International Macroeconomics

November 2000

ECB Working Paper No. 35

This paper develops a broad concept of systemic risk, the basic economic concept for the understanding of financial crises. It is claimed that any such concept must integrate systemic events in banking and financial markets as well as in the related payment and settlement systems. At the heart of systemic risk are contagion effects, various forms of external effects. The concept also includes simultaneous financial instabilities following aggregate shocks. The quantitative literature on systemic risk, which was evolving swiftly in the last couple of years, is surveyed in the light of this concept. Various rigorous models of bank and payment system contagion have now been developed, although a general theoretical paradigm is still missing. Direct econometric tests of bank contagion effects seem to be mainly limited to the United States. Empirical studies of systemic risk in foreign exchange and security settlement systems appear to be non-existent. Moreover, the literature surveyed reflects the general difficulty to develop empirical tests that can make a clear distinction between contagion in the proper sense and joint crises caused by common shocks, rational revisions of depositor or investor expectations when information is asymmetric ("information-based" contagion) and "pure" contagion as well as between "efficient" and "inefficient" systemic events.
currency crises

Number of Pages in PDF File: 79

Keywords: Systemic risk, financial stability, banking crises, contagion, financial markets, payment and settlement systems,

JEL Classification: G21, G29, G12, E49

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Date posted: March 13, 2001  

Suggested Citation

de Bandt, Olivier and Hartmann, Philipp, Systemic Risk: A Survey (November 2000). ECB Working Paper No. 35. Available at SSRN: http://ssrn.com/abstract=258430

Contact Information

Olivier De Bandt
Banque de France - Economic Study and Research Division ( email )
31, rue Croix des Petits Champs
75049 Paris Cedex 01
(33 1) 42 92 28 80 (Phone)
(33 1) 42 92 27 66 (Fax)
Philipp Hartmann (Contact Author)
European Central Bank (ECB) ( email )
Sonnemannstrasse 22
Frankfurt am Main, 60314
(49 69) 1344 7356 (Phone)
(49 69) 1344 8553 (Fax)
Centre for Economic Policy Research (CEPR) - International Macroeconomics
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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References:  296
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