Measuring Systemic Risk - An International Framework
- Friday, April 11 from 3:00 to 4:30 in Room 552; Refreshments 2:30 in Room 502
A time and cross-sectional methodology for estimating systemic risk in case of a Global (Regional) financial crisis. This quantity, denoted Global (Regional) Systemic Expected Shortfall (SES), is defined as the aggregate amount of capital that financial institutions need, in order to offset a certain fraction of liabilities, when in aggregate the Global (Regional) financial system is undercapitalized. Each financial institution’s SES is a combination of three main components: the market capitalization, the total amount of liabilities and the appropriate capital adequacy ratios. We empirically study the joint combination of these components for a sample of 1981 financial institutions that belong to the main G- 20 economies, screened at the beginning of December 2011. The findings of the paper are many: (i) We derive a parametric and a non-parametric generalized version of the Marginal Expected Shortfall (MES) able to take into account asynchronicity issues that arise in international analysis. (ii) We study the relationship between percentage variation of market capitalization and liabilities with leverage (LVG) and the (generalized) non-parametric MES, during a “demo” period of crisis (July 2007 to December 2008). (iii) We derive appropriate capital adequacy ratios for financial industries/subindustries able to take into account divergences across accounting standards. (iv) We compute each financial institution’s SES in case of a Global (Regional) financial crisis, at the beginning of December 2011. (v) We compare several specifications of SES with an extended version of SRISK.
Dr. Giuseppe Corvasce
Prof. Dr. Giuseppe CORVASCE is a research scientist in financial economics and affiliated with the Sociey for Financial Studies, although the views expressed in his presentation are his own. He graduated from the Swiss Finance Institute with a Ph.D inEconomics with specialization in Finance, after his studies undertaken at Bocconi University. During his doctorate, he was a research and teaching assistant for the project RISK MANAGEMENT (NCCR-FINRISK). Giuseppe is or has been a visiting research scholar at the University of Calgary – Haskayne School of Business, University of Alberta, Luxembourg School of Finance, Fordham University and New York University – Stern School of Business where he was also appointed as a research scientist in The Salomon Center and Volatility Institute. He has been a visiting researcher at the Bank of Italy, Banque de France, Office of Financial Research and member of several academic and professional associations and societies. He is also a reviewer of several journals in finance, economics and operational research. His research interests are: financial economics, systemic risk, financial intermediation, risk management, asset allocation, international finance, volatility, financial regulation, financial stability, corporate governance and special situations.