Financial Stress Index: A Lens for Supervising the Financial System

57 Pages Posted: 6 Apr 2013

See all articles by Mikhail V. Oet

Mikhail V. Oet

Case Western Reserve University - Weatherhead School of Management; Federal Reserve Banks - Federal Reserve Bank of Cleveland

Timothy Bianco

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Dieter Gramlich

Baden-Wuerttemberg Cooperative State University Mosbach (DHBW)

Stephen J. Ong

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: December 28, 2012

Abstract

This paper develops a new financial stress measure (Cleveland Financial Stress Index, CFSI) that considers the supervisory objective of identifying risks to the stability of the financial system. The index provides a continuous signal of financial stress and broad coverage of the areas that could indicate it. The construction methodology uses daily public market data collected from different sectors of financial markets. A unique feature of the index is that it employs a dynamic weighting method that captures the changing relative importance of the different sectors of the financial system. This study shows how the index can be applied to monitoring and analyzing financial system conditions.

Keywords: financial system stability, systemic risk, financial stress, financial supervision, financial stress index

JEL Classification: G01, G10, C22, C52, E32, E44, E66

Suggested Citation

Oet, Mikhail V. and Bianco, Timothy and Gramlich, Dieter and Ong, Stephen J., Financial Stress Index: A Lens for Supervising the Financial System (December 28, 2012). FRB of Cleveland Policy Discussion Paper No. 12-37. Available at SSRN: https://ssrn.com/abstract=2246081

Mikhail V. Oet (Contact Author)

Case Western Reserve University - Weatherhead School of Management ( email )

364 PBL Building
Cleveland, OH 44106
United States

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States
216.774.2684 (Phone)
216.579.2932 (Fax)

Timothy Bianco

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Dieter Gramlich

Baden-Wuerttemberg Cooperative State University Mosbach (DHBW) ( email )

Lohrtalweg 10
Mosbach, 74821
Germany

Stephen J. Ong

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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