Pitfalls in Systemic-Risk Scoring
81 Pages Posted: 28 Sep 2013 Last revised: 9 Feb 2018
Date Written: February 8, 2018
In this paper, 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 shortcomings and increases incentives for banks to reduce their risk contributions.
Keywords: G-SIFI, regulatory capital, Basel Committee
JEL Classification: G21
Suggested Citation: Suggested Citation