A Systematic Approach to Measures of Systemic Risk

6 Pages Posted: 30 Jun 2014 Last revised: 12 Jul 2014

See all articles by James Ming Chen

James Ming Chen

Michigan State University - College of Law

Date Written: June 29, 2014


The failure of individual firms in the banking industry poses a unique threat to the entire economy. Emerging wisdom on systemic risk has identified two shortcomings in traditional regulatory approaches, all of which failed to anticipate the financial crisis of 2008-09. First, static measures of firm size, designed to identify institutions "too big to fail," fall short of detecting the contributions of correlation and interconnectedness to systemically significant bank failures. Second, traditional regulatory emphasis on capital adequacy has sought to guide the management of expected risks by individual banks under ordinary conditions, at the expense of anticipating the collective reaction of the banking industry to extreme stress. This anthology summarizes work toward a rigorous, systematic understanding of measures of systemic risk.

Keywords: Systemic risk, banking, VaR, financial crisis

Suggested Citation

Chen, James Ming, A Systematic Approach to Measures of Systemic Risk (June 29, 2014). MSU Legal Studies Research Paper No. 12-13, Available at SSRN: https://ssrn.com/abstract=2460486 or http://dx.doi.org/10.2139/ssrn.2460486

James Ming Chen (Contact Author)

Michigan State University - College of Law ( email )

318 Law College Building
East Lansing, MI 48824-1300
United States

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