Bank Holdings and Systemic Risk
52 Pages Posted: 17 Sep 2018 Last revised: 21 Feb 2019
Date Written: 2018-09-04
The recent financial crisis has focused attention on identifying and measuring systemic risk. In this paper, we propose a novel approach to estimate the portfolio composition of banks as function of daily interbank trades and stock returns. While banksâ€™ assets are reported to regulators and/or the public at relatively low frequencies (e.g. quarterly or annually), our approach estimates bank asset holdings at higher frequencies which allows us to derive precise estimates of (i) portfolio concentration within each bankâ€”a measure of diversificationâ€”and (ii) common holdings across banksâ€”a measure of market susceptibility to propagating shocks. We find evidence that systemic risk measures derived from our approach lead, in a forecasting sense, several commonly used systemic risk indicators.
Keywords: Systemic risk, Concentration index, Bank holdings, Similarity index
JEL Classification: G21, C11, G11
Suggested Citation: Suggested Citation