Incorporating Systemic Influences into Risk Measurements: A Survey of the Literature

83 Pages Posted: 15 Feb 2004

See all articles by Linda Allen

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Anthony Saunders

New York University - Leonard N. Stern School of Business

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Abstract

Procyclicality has emerged as a potential drawback to adoption of risk-sensitive bank capital requirements. Systematic risk factors may result in increases (decreases) in bank capital requirements when the economy is depressed (overheated), thereby decreasing (increasing) bank lending capacity and exacerbating business cycle fluctuations. Procyclicality may result from systematic risk emanating from common macroeconomic influences or from interdependencies across firms as financial markets and institutions consolidate internationally. We survey the literature on cyclical effects on operational risk, credit risk and market risk measures.

Keywords: Operational risk, credit risk, market risk, procyclicality

Suggested Citation

Allen, Linda and Saunders, Anthony, Incorporating Systemic Influences into Risk Measurements: A Survey of the Literature. Journal of Financial Services Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=501042

Linda Allen (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

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HOME PAGE: http://stern.nyu.edu/~lallen

Anthony Saunders

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

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New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

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