Systemic Risk and Bank Failure

46 Pages Posted: 9 Sep 2014 Last revised: 29 Mar 2018

See all articles by Deming Wu

Deming Wu

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Date Written: March 1, 2018

Abstract

This paper incorporates different measures of systemic risk in models of bank-failure prediction. We find that systemic risk is not a new phenomenon during the latest banking crisis, but its influence is stronger after 2005. The predictive power of systemic risk declines with predicting time interval. This finding suggests that, immediately before the failure, the influence of systemic risk seems to be largely channeled through and reflected in the worsening balance sheet. This finding helps reconcile the controversy over the role of systemic risk in bank failures. Finally, there is evidence that systemic risk weakens banks’ capital buffers.

Keywords: bank performance, bank failure, systemic risk, TED spread, LIBOR-OIS, distressed insurance premium (DIP), conditional value-at-risk (CoVAR), SRISK

JEL Classification: G21, G28, R10

Suggested Citation

Wu, Deming, Systemic Risk and Bank Failure (March 1, 2018). Available at SSRN: https://ssrn.com/abstract=2492883 or http://dx.doi.org/10.2139/ssrn.2492883

Deming Wu (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
241
Abstract Views
4,200
rank
129,728
PlumX Metrics