Incorporating Systemic Influences into Risk Measurements: A Survey of the Literature

78 Pages Posted: 5 Nov 2008

See all articles by Linda Allen

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Anthony Saunders

New York University - Leonard N. Stern School of Business

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Date Written: December 2002

Abstract

Procyclicality has emerged as a potential drawback to adoption of risk-sensitive bank capital requirements. Systematic risk factors may result in increases (decreases) in bank capital requirements when the economy is depressed (overheated), thereby decreasing (increasing) bank lending capacity and exacerbating business cycle fluctuations. Procyclicality may result from systematic risk emanating from common macroeconomic influences or from interdependencies across firms as financial markets and institutions consolidate internationally. We describe cyclical effects on operational risk, credit risk and market risk measures.

Suggested Citation

Allen, Linda and Saunders, Anthony, Incorporating Systemic Influences into Risk Measurements: A Survey of the Literature (December 2002). NYU Working Paper No. S-CDM-02-07. Available at SSRN: https://ssrn.com/abstract=1295814

Linda Allen (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

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HOME PAGE: http://stern.nyu.edu/~lallen

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

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New York, NY 10012-1126
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212-995-4220 (Fax)

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