Systemic Risk Measures and Their Viability for Banking Supervision

48 Pages Posted: 9 Jul 2014 Last revised: 16 Jan 2016

Benjamin Döring

University of Cologne

Claudio Nicolai Wewel

University of Cologne

Thomas Hartmann-Wendels

University of Cologne - Department of Banking

Date Written: January 13, 2016

Abstract

We propose a criteria-based framework to assess the viability of systemic risk measures (SRMs) as a monitoring tool for banking supervision and investigate the determinants of the banking system's overall level of systemic risk. Comparing three prominent SRMs we find that all of them possess substantial forecasting power for banking system distress, however, the measures vary significantly in their predictive accuracy for the state of the real economy. Furthermore, we find that the system-wide market-to-book (MTB) and loan-to-deposit (LTD) ratios act as fundamental drivers of systemic risk. The results have paramount implications. First, the MTB ratio itself may be used as a simple and efficient proxy for the overall systemic tension in the banking system. Second, the systemic relevance of the LTD ratio underlines the critical role of funding liquidity and supports recently proposed regulatory initiatives that curb aggregate liquidity risks. Third, the inclusion of balance sheet data is beneficial for systemic risk measurement.

Keywords: banking crises, CoVaR, macro-financial linkages, MES, SRISK, supervision, systemic risk

JEL Classification: C15, C32, G01, G21, G28

Suggested Citation

Döring, Benjamin and Wewel, Claudio Nicolai and Hartmann-Wendels, Thomas, Systemic Risk Measures and Their Viability for Banking Supervision (January 13, 2016). Available at SSRN: https://ssrn.com/abstract=2463184 or http://dx.doi.org/10.2139/ssrn.2463184

Benjamin Döring

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Claudio Nicolai Wewel (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Thomas Hartmann-Wendels

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
D-50923 Cologne
Germany

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