SRISK: A Conditional Capital Shortfall Measure of Systemic Risk

47 Pages Posted: 18 May 2010 Last revised: 5 Aug 2016

Christian T. Brownlees

Universitat Pompeu Fabra - Department of Economics and Business; Barcelona Graduate School of Economics (Barcelona GSE)

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: April 4, 2016

Abstract

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

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

Christian T. Brownlees (Contact Author)

Universitat Pompeu Fabra - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://www.econ.upf.edu/~cbrownlees/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas 25-27
Barcelona, Catalonia 08014
Spain

Robert F. Engle

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

269 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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