Pitfalls in Systemic-Risk Scoring

74 Pages Posted: 28 Sep 2013 Last revised: 23 Mar 2017

Sylvain Benoit

Université Paris Dauphine - LEDa-SDFi

Christophe Hurlin

University of Orleans; Université Paris IX Dauphine

Christophe Perignon

HEC Paris - Finance Department

Date Written: March 22, 2017


We identify several shortcomings in the systemic-risk scoring methodology currently used to identify and regulate Systemically Important Financial Institutions (SIFIs). Using newly-disclosed regulatory data for 119 US and international banks, we show that the current scoring methodology severely distorts the allocation of regulatory capital among banks. We then propose and implement a methodology that corrects for these short-comings and increases incentives for banks to reduce their risk contributions. Unlike the current scores, our adjusted scores are mainly driven by risk indicators directly under the control of the regulated bank and not by factors that are exogenous to the bank, such as exchange rates or other banks' actions.

Keywords: G-SIFI, regulatory capital, Basel Committee

JEL Classification: G21

Suggested Citation

Benoit, Sylvain and Hurlin, Christophe and Perignon, Christophe, Pitfalls in Systemic-Risk Scoring (March 22, 2017). HEC Paris Research Paper No. FIN-2013-1005. Available at SSRN: https://ssrn.com/abstract=2332030 or http://dx.doi.org/10.2139/ssrn.2332030

Sylvain Benoit

Université Paris Dauphine - LEDa-SDFi ( email )

Place du Maréchal de Lattre de Tassigny
Paris, Cedex 16 75775

Christophe Hurlin

University of Orleans ( email )

Université d'Orléans
Rue de Blois B.P. 6739 45

Université Paris IX Dauphine ( email )

223 Rue Saint-Honore
Paris, 75775
01 44 05 42 94 (Phone)

Christophe Perignon (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351

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