Smart Systemic-Risk Scores
49 Pages Posted: 6 Nov 2018 Last revised: 17 Dec 2018
Date Written: November 23, 2018
I propose a new systemic-risk score to identify and regulate systemically important financial institutions (SIFIs) by using an alternative weighting scheme based on volatility to aggregate all systemic-risk facets. Following a portfolio management approach, I equalize the risk contribution of each systemic-risk component to the cross-sectional volatility of my smart systemic-risk scores. To discriminate between several systemic-risk scores, I apply an axiomatic framework to express supervisor preferences among systemic-risk scores. Such preferences are based on the expected value of the cross-sectional dispersion of systemic-risk scores over the years.
Keywords: Systemic Risk, Risk Management, Macroprudential Regulation, Systemically Important Financial Institutions, Banking
JEL Classification: G01, G28, G32
Suggested Citation: Suggested Citation