Bank Holdings and Systemic Risk

52 Pages Posted: 17 Sep 2018 Last revised: 21 Feb 2019

See all articles by Celso Brunetti

Celso Brunetti

Board of Governors of the Federal Reserve System

Jeffrey H. Harris

American University - Department of Finance and Real Estate

Shawn Mankad

Cornell University

Date Written: 2018-09-04

Abstract

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 banks’ 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 bank—a measure of diversification—and (ii) common holdings across banks—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

Brunetti, Celso and Harris, Jeffrey H. and Mankad, Shawn, Bank Holdings and Systemic Risk (2018-09-04). FEDS Working Paper No. 2018-063. Available at SSRN: https://ssrn.com/abstract=3246216 or http://dx.doi.org/10.17016/FEDS.2018.063

Celso Brunetti (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jeffrey H. Harris

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-6669 (Phone)

Shawn Mankad

Cornell University ( email )

Ithaca, NY 14853
United States
6072559594 (Phone)

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