Does Market's Assessment of Systemically Important Banks Differ from Regulators' Rankings?

49 Pages Posted: 6 May 2021

See all articles by Davide Vioto

Davide Vioto

European Banking Authority (EBA)

Radu Tunaru

University of Sussex

Esa Jokivuolle

Bank of Finland, Research Unit

Date Written: May 4, 2021

Abstract

This paper tests how closely the three leading market-based systemic risk measures (SRM) agree with the list of global systemically important banks (G-SIB) from the Financial Stability Board (FSB) and how closely they match the categorization of G-SIBs into the five systemic risk buckets used by the FSB to assign capital surcharges to G-SIBs. In addition, we investigate the concordance among these SRMs and with the FSB's designation methodology for G-SIBs. Finally, we test how these SRMs incorporate the information from high volatile events between 2015 to 2018. Our results show that alternative measures produce different estimates of systemic risk, systemically important banks and categories, with the SRISK ranking having the highest concordance with the FSB's classification of G-SIBs. In contrast, the three measures all promptly react to high volatile events.

Keywords: Systemic risk measure, Systemic risk ranking validation, Dominance test, Estimation Uncertainty, Concordance measure.

JEL Classification: C12, G01, G18, G20.

Suggested Citation

Vioto, Davide and Tunaru, Radu and Jokivuolle, Esa, Does Market's Assessment of Systemically Important Banks Differ from Regulators' Rankings? (May 4, 2021). Available at SSRN: https://ssrn.com/abstract=3839633 or http://dx.doi.org/10.2139/ssrn.3839633

Davide Vioto (Contact Author)

European Banking Authority (EBA) ( email )

20 avenue André Prothin CS 30154
One Canada Square, Canary Wharf
92927 Paris, La Défense CEDEX E14 5AA
France

Radu Tunaru

University of Sussex ( email )

Jubilee
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United Kingdom

Esa Jokivuolle

Bank of Finland, Research Unit ( email )

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FIN-00101 Helsinki
Finland
+358 10 831 2309 (Phone)

HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/jokivuolle_esa/

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