Quantifying Systemic Risk in the Presence of Unlisted Banks: Application to the European Banking Sector

73 Pages Posted: 8 Mar 2023 Last revised: 10 Mar 2024

See all articles by Daniel Dimitrov

Daniel Dimitrov

University of Amsterdam; Tinbergen Institute; De Nederlandsche Bank - Financial Markets Division

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: March 1, 2023

Abstract

We propose a credit portfolio approach for evaluating systemic risk and attributing it across institutions. We construct a model that can be estimated from high-frequency CDS data. This captures risks from publicly traded banks, privately held institutions, and coöperative banks, extending approaches that rely on information from the public equity market only. We account for correlated losses between the institutions, overcoming a modeling weakness in earlier studies. We also offer a modeling extension to account for fat tails and skewness of asset returns. The model is applied to a universe of banks where we find discrepancies between the capital adequacy of the largest contributors to systemic risk relative to less systemically important banks on a European scale.

Keywords: G01, G20, G18, G38

JEL Classification: systemic risk, CDS rates, implied market measures, financial institutions, fat tails, O-SII buffers

Suggested Citation

Dimitrov, Daniel and van Wijnbergen, Sweder, Quantifying Systemic Risk in the Presence of Unlisted Banks: Application to the European Banking Sector (March 1, 2023). De Nederlandsche Bank Working Paper No. 768, Available at SSRN: https://ssrn.com/abstract=4382033 or http://dx.doi.org/10.2139/ssrn.4382033

Daniel Dimitrov (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute

De Nederlandsche Bank - Financial Markets Division ( email )

P.O.B. 98
1000 AB Amsterdam
Netherlands

Sweder Van Wijnbergen

Universiteit van Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4011 / 4203 (Phone)
+31-35-624 91 82 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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