Systemic Risk 10 Years Later

Posted: 8 Nov 2018

See all articles by Robert F. Engle

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: November 2018

Abstract

Ten years ago, the financial crisis spurred research focused on systemic risk. This article examines the history and application of the SRISK measure, which was developed at that time and is now widely used in monitoring systemic risk around the globe. The concept is explained and a variety of ways to measure SRISK are developed. In this article, new results are presented on the uncertainty associated with the SRISK measure and on how it compares with other related measures from both academics and regulators. By focusing on the mechanism by which undercapitalization of the financial sector initiates a financial crisis, new research examines how the probability of a financial crisis is affected by the level of SRISK and, consequently, how much SRISK a country can stand without having a high probability of crisis. The model used to evaluate this probability recognizes the externalities between financial institutions that make an undercapitalized firm or country more fragile if other firms and countries are also undercapitalized.

Suggested Citation

Engle, Robert F., Systemic Risk 10 Years Later (November 2018). Annual Review of Financial Economics, Vol. 10, pp. 125-152, 2018. Available at SSRN: https://ssrn.com/abstract=3280828 or http://dx.doi.org/10.1146/annurev-financial-110217-023056

Robert F. Engle (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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New York University (NYU) - Department of Finance

Stern School of Business
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National Bureau of Economic Research (NBER)

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