47 Pages Posted: 18 May 2010 Last revised: 5 Aug 2016
Date Written: April 4, 2016
We introduce SRISK to measure the systemic risk contribution of a financial firm. SRISK measures the capital shortfall of a firm conditional on a severe market decline, and is a function of its size, leverage and risk. We use the measure to study top US financial institutions in the recent financial crisis. SRISK delivers useful rankings of systemic institutions at various stages of the crisis and identifies Fannie Mae, Freddie Mac, Morgan Stanley, Bear Stearns and Lehman Brothers as top contributors as early as 2005-Q1. Moreover, aggregate SRISK provides early warning signals of distress in indicators of real activity.
Keywords: Systemic Risk Measurement, Forecasting
JEL Classification: C22, C23, C53, G01, G20
Suggested Citation: Suggested Citation
Brownlees, Christian T. and Engle, Robert F., SRISK: A Conditional Capital Shortfall Measure of Systemic Risk (April 4, 2016). Available at SSRN: https://ssrn.com/abstract=1611229 or http://dx.doi.org/10.2139/ssrn.1611229
By Meb Faber