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Are Market-Based Rankings of Global Systemically Important Financial Institutions Useful for Regulators?

56 Pages Posted: 11 Aug 2013 Last revised: 5 Oct 2015

Qi Zhang

Independent

Francesco Vallascas

University of Leeds - Division of Accounting and Finance

Kevin Keasey

University of Leeds - Division of Accounting and Finance

Charlie X. Cai

University of Liverpool Management School

Date Written: December 17, 2014

Abstract

We analyze whether four market-based measures of the global systemic importance of financial institutions offer early warning signals during three financial crises. The tests based on the 2007/2008 crisis show that only one measure (∆CoVaR) consistently adds predictive power to conventional early warning models. However, the additional predictive power remains small and it is not normally confirmed for the Asian and the 1998 crises. We conclude that it is problematic to identify a market-based measure of systemic importance that remains valid across crises with different features. The same criticism also applies to several conventional proxies of systemic importance, of which size is the most consistent performer.

Keywords: systemic risk, systemically important financial institutions, regulation, bank bailouts

JEL Classification: G28

Suggested Citation

Zhang, Qi and Vallascas, Francesco and Keasey, Kevin and Cai, Charlie X., Are Market-Based Rankings of Global Systemically Important Financial Institutions Useful for Regulators? (December 17, 2014). Journal of Money, Credit, and Banking, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2308612 or http://dx.doi.org/10.2139/ssrn.2308612

Qi Zhang

Independent

No Address Available

Francesco Vallascas

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

Kevin Keasey

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 2618 (Phone)

Charlie Xiaowu Cai (Contact Author)

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

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