Systemic Risk in a Structural Model of Bank Default Linkages

46 Pages Posted: 6 Dec 2015 Last revised: 17 May 2017

See all articles by Yvonne Kreis

Yvonne Kreis

Gutenberg University of Mainz

Dietmar Leisen

Johannes Gutenberg University Mainz - Department of Banking

Date Written: May 12, 2017

Abstract

We study a structural model of individual bank defaults across the banking sector; banks are interconnected through their exposure to a common risk factor. The paper introduces a systemic risk measure based on the default frequency in the banking sector; this measure depends non-linearly on the factor's loadings, in contrast to previous systemic risk measures that depend linearly on loadings. We estimate loadings in the U.S. banking system over the course of the last 36 years; we find that they have considerably increased over time and identify four major regimes. Our measure shows that systemic risk became critical in the last of our four regimes, covering the most recent time period from 05/2007 to 09/2016. The empirical findings highlight that our measure complements existing systemic risk measures.

Keywords: default, structural model, systemic risk, macro-prudential regulation

JEL Classification: G01, G21

Suggested Citation

Kreis, Yvonne and Leisen, Dietmar P. J., Systemic Risk in a Structural Model of Bank Default Linkages (May 12, 2017). Available at SSRN: https://ssrn.com/abstract=2699242 or http://dx.doi.org/10.2139/ssrn.2699242

Yvonne Kreis

Gutenberg University of Mainz ( email )

Chair of Corporate Finance
D-55099 Mainz, 55128
Germany

Dietmar P. J. Leisen (Contact Author)

Johannes Gutenberg University Mainz - Department of Banking ( email )

Jakob-Welder-Weg 9
Mainz, D-55099
Germany
++49-6131-39 22097 (Phone)
++49-6131-39 23971 (Fax)

HOME PAGE: http://www.finserv.bwl.uni-mainz.de/index_ENG.php

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