Back to the Future: Backtesting Systemic Risk Measures During Historical Bank Runs and the Great Depression

73 Pages Posted: 14 Jun 2017 Last revised: 25 May 2018

See all articles by Christian T. Brownlees

Christian T. Brownlees

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona School of Economics

Benjamin Remy Chabot

Federal Reserve Bank of Chicago

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Christopher Johann Kurz

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: May 10, 2018

Abstract

We evaluate the performance of two popular systemic risk measures, CoVaR and SRISK, during eight financial panics in the era before FDIC insurance. Bank stock price and balance sheet data were not readily available for this time period. We rectify this shortcoming by constructing a novel dataset for the New York banking system before 1933. Our evaluation exercise focuses on two challenges: the ranking of systemically important financial institutions (SIFIs) and financial crisis prediction. We find that CoVaR and SRISK meet the SIFI ranking challenge, i.e. help identifying systemic institutions in periods of distress beyond what is explained by standard risk measures up to six months prior to panics. In contrast, aggregate CoVaR and SRISK are only somewhat effective at predicting financial crises.

Keywords: Systemic Risk, Financial Crises, Risk Measures

JEL Classification: G01, G21, G28, N21

Suggested Citation

Brownlees, Christian T. and Chabot, Benjamin Remy and Ghysels, Eric and Kurz, Christopher Johann, Back to the Future: Backtesting Systemic Risk Measures During Historical Bank Runs and the Great Depression (May 10, 2018). Available at SSRN: https://ssrn.com/abstract=2985481 or http://dx.doi.org/10.2139/ssrn.2985481

Christian T. Brownlees (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://econ.upf.edu/~cbrownlees/

Barcelona School of Economics ( email )

Carrer de Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Benjamin Remy Chabot

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Eric Ghysels

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)

HOME PAGE: http://www.unc.edu/~eghysels/

Christopher Johann Kurz

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
269
Abstract Views
1,464
rank
142,325
PlumX Metrics