Search results

1 – 10 of over 11000
To view the access options for this content please click here
Article
Publication date: 19 June 2018

Thomas Gehrig and Maria Chiara Iannino

This paper aims to analyze systemic risk in and the effect of capital regulation on the European insurance sector. In particular, the evolution of an exposure measure

Abstract

Purpose

This paper aims to analyze systemic risk in and the effect of capital regulation on the European insurance sector. In particular, the evolution of an exposure measure (SRISK) and a contribution measure (Delta CoVaR) are analyzed from 1985 to 2016.

Design/methodology/approach

With the help of multivariate regressions, the main drivers of systemic risk are identified.

Findings

The paper finds an increasing degree of interconnectedness between banks and insurance that correlates with systemic risk exposure. Interconnectedness peaks during periods of crisis but has a long-term influence also during normal times. Moreover, the paper finds that the insurance sector was greatly affected by spillovers from the process of capital regulation in banking. While European insurance companies initially at the start of the Basel process of capital regulation were well capitalized according to the SRISK measure, they started to become capital deficient after the implementation of the model-based approach in banking with increasing speed thereafter.

Practical implications

These findings are highly relevant for the ongoing global process of capital regulation in the insurance sector and potential reforms of Solvency II. Systemic risk is a leading threat to the stability of the global financial system and keeping it under control is a main challenge for policymakers and supervisors.

Originality/value

This paper provides novel tools for supervisors to monitor risk exposures in the insurance sector while taking into account systemic feedback from the financial system and the banking sector in particular. These tools also allow an evidence-based policy evaluation of regulatory measures such as Solvency II.

To view the access options for this content please click here
Book part
Publication date: 14 December 2018

Shatha Qamhieh Hashem and Islam Abdeljawad

This chapter investigates the presence of a difference in the systemic risk level between Islamic and conventional banks in Bangladesh. The authors compare systemic

Abstract

This chapter investigates the presence of a difference in the systemic risk level between Islamic and conventional banks in Bangladesh. The authors compare systemic resilience of three types of banks: fully fledged Islamic banks, purely conventional banks (CB), and CB with Islamic windows. The authors use the market-based systemic risk measures of marginal expected shortfall and systemic risk to identify which type is more vulnerable to a systemic event. The authors also use ΔCoVaR to identify which type contributes more to a systemic event. Using a sample of observations on 27 publicly traded banks operating over the 2005–2014 period, the authors find that CB is the least resilient sector to a systemic event, and is the one that has the highest contribution to systemic risk during crisis times.

Details

Management of Islamic Finance: Principle, Practice, and Performance
Type: Book
ISBN: 978-1-78756-403-9

Keywords

Content available
Article
Publication date: 7 September 2021

Ming Qi, Jiawei Zhang, Jing Xiao, Pei Wang, Danyang Shi and Amuji Bridget Nnenna

In this paper the interconnectedness among financial institutions and the level of systemic risks of four types of Chinese financial institutions are investigated.

Abstract

Purpose

In this paper the interconnectedness among financial institutions and the level of systemic risks of four types of Chinese financial institutions are investigated.

Design/methodology/approach

By the means of RAS algorithm, the interconnection among financial institutions are illustrated. Different methods, including Linear Granger, Systemic impact index (SII), vulnerability index (VI), CoVaR, and MES are used to measure the systemic risk exposures across different institutions.

Findings

The results illustrate that big banks are more interconnected and hold the biggest scales of inter-bank transactions in the financial network. The institutions which have larger size tend to have more connection with others. Insurance and security companies contribute more to the systemic risk where as other institutions, such as trusts, financial companies, etc. may bring about severe loss and endanger the financial system as a whole.

Practical implications

Since other institutions with low levels of regulation may bring about higher extreme loss and suffer the whole system, it deserves more attention by regulators considering the contagion of potential risks in the financial system.

Originality/value

This study builds a valuable contribution by examine the systemic risks from the perspectives of both interconnection and tail risk measures. Furthermore; Four types financial institutions are investigated in this paper.

Details

Kybernetes, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0368-492X

Keywords

To view the access options for this content please click here
Article
Publication date: 2 November 2015

Jacob Kleinow and Tobias Nell

This paper aims to investigate the drivers of systemic risk and contagion among European banks from 2007 to 2012. The authors explain why some banks are expected to…

Abstract

Purpose

This paper aims to investigate the drivers of systemic risk and contagion among European banks from 2007 to 2012. The authors explain why some banks are expected to contribute more to systemic events in the European financial system than others by analysing the tail co-movement of banks’ security prices.

Design/methodology/approach

First, the authors derive a systemic risk measure from the concepts of marginal expected shortfall and conditional value at risk analysing tail co-movements of daily bank stock returns. The authors then run panel regressions for the systemic risk measure using idiosyncratic bank characteristics and a set of country and policy control variables.

Findings

The results comprise highly significant drivers of systemic risk in the European banking sector with important implications for research and banking regulation. Using a set of panel regressions, the authors identify bank size, asset and income structure, loss and liquidity coverage, profitability and several macroeconomic conditions as drivers of systemic risk.

Research limitations/implications

Analysing the tail co-movement of security prices excludes a number of “smaller” institutions without publicly listed securities. The other shortfall is that we do not assess the systemic impact of non-bank financial institutions.

Practical implications

Regulators have to consider a broad variety of indicators for assessing systemic risks. Existing microprudential-oriented rules are less effective, and policymakers may consider new measures like asset diversification to mitigate systemic risks in the banking system.

Originality/value

The authors contribute to existing empirical analyses in three ways. First, they propose a method to identify systemically important banks (SIBs). Second, they develop two measures to assess their potential negative impact on the system. Third, they contribute to the closing of the research gaps by analysing which macroprudential regulations for SIBs are most effective without hampering free market forces.

Details

Journal of Financial Economic Policy, vol. 7 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

To view the access options for this content please click here
Article
Publication date: 2 November 2018

Li Li, Mary Ma and Victor Song

The purpose of this paper is to investigate the effects of audit client importance on future bank risk and systemic risk in US-listed commercial banks.

Abstract

Purpose

The purpose of this paper is to investigate the effects of audit client importance on future bank risk and systemic risk in US-listed commercial banks.

Design/methodology/approach

The authors use archival research method.

Findings

The authors mainly find that client importance is negatively related with future bank-specific crash risk and distress risk, and also with sector-wide systemic crash risk and systemic distress risk in the future. The authors also report some evidence that these relations become more pronounced during the crisis period than during the non-crisis period. Moreover, the effect of client importance on systemic risk is found to strengthen in banks audited by Big-N auditors, by auditors without clients who restate earnings, and by auditors with more industry expertise.

Research limitations/implications

These findings contribute to the auditing and systemic risk literature.

Practical implications

This study has implications for regulating the banking industry.

Originality/value

This study provides original evidence on how client importance affects bank-specific risk and systemic risk of the banking industry.

Details

Asian Review of Accounting, vol. 26 no. 4
Type: Research Article
ISSN: 1321-7348

Keywords

To view the access options for this content please click here
Article
Publication date: 11 November 2014

Yan Wang, Shoudong Chen and Xiu Zhang

The purpose of this paper is to measure a single financial institution's contribution to systemic risk by using extremal quantile regression and analyzing the influential…

Abstract

Purpose

The purpose of this paper is to measure a single financial institution's contribution to systemic risk by using extremal quantile regression and analyzing the influential factors of systemic risk.

Design/methodology/approach

Extreme value theory is applied when measuring the systemic risk of financial institutions. Extremal quantile regression, where extreme value distribution is assumed for the tail, is used to measure the extreme risk and analyze the changes in and dependencies of risk. Furthermore, influential factors of systemic risk are analyzed using panel regression.

Findings

The key findings of the paper are that value at risk and contribution to systemic risk are very different when measuring the risk of a financial institution; banks’ contributions to systemic risk are much higher; and size and leverage ratio are two significant and important factors influencing an institution's systemic risk.

Practical implications

Characterizing variables of financial institutions such as size, leverage ratio and market beta should be considered together when regulating and constraining financial institutions.

Originality/value

To take extreme risk into account, this paper measures systemic financial risk using extremal quantile regression for the first time.

Details

China Finance Review International, vol. 4 no. 4
Type: Research Article
ISSN: 2044-1398

Keywords

To view the access options for this content please click here
Article
Publication date: 15 November 2011

Sigbjørn Atle Berg

There is an emerging consensus that systemically important banks should face stricter regulations and systemic surcharges. To make this latter principle operational the…

Downloads
374

Abstract

Purpose

There is an emerging consensus that systemically important banks should face stricter regulations and systemic surcharges. To make this latter principle operational the regulator will need to quantify the systemic importance of individual banks. The purpose of this paper is to review the proposed measures of systemic importance from the research community and discuss their merits relative to how a regulator would ideally wish to calibrate surcharges on systemically important banks, and to evaluate how useful proposed measures of the systemic importance of financial institutions will be to regulators.

Design/methodology/approach

The author reviews the main contributions to the research literature and discusses their relevance for the problem faced by regulators.

Findings

There are five main caveats that make the proposed measures of systemic importance less useful for regulators.

Practical implications

The proposed measures may help identify relevant aspects of systemic importance, but the regulators will need to construct their own measures for practical use.

Originality/value

The paper provides a critical review of a research literature that could potentially have large practical implications.

Details

Journal of Financial Regulation and Compliance, vol. 19 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

To view the access options for this content please click here
Article
Publication date: 15 August 2016

Sascha Strobl

This study investigates the risk-taking behavior of financial institutions in the USA. Specifically, differences between taking risks that affect primarily the…

Downloads
1402

Abstract

Purpose

This study investigates the risk-taking behavior of financial institutions in the USA. Specifically, differences between taking risks that affect primarily the shareholders of the institution and risks contributing to the overall systemic risk of the financial sector are examined. Additionally, differences between risk-taking before, during and after the financial crisis of 2007/2008 are examined.

Design/methodology/approach

To analyze the determinants of stand-alone and systemic risk, a generalized linear model including size, governance, charter value, business cycle, competition and control variables is estimated. Furthermore, Granger causality tests are conducted.

Findings

The results show that systemic risk has a positive effect on valuation and that corporate governance has no significant effect on risk-taking. The influence of competition is conditional on the state of the economy and the risk measure used. Systemic risk Granger-causes idiosyncratic risk but not vice versa.

Research limitations/implications

The major limitations of this study are related to the analyzed subset of large financial institutions and important risk-culture variables being omitted.

Practical implications

The broad policy implication of this paper is that systemic risk cannot be lowered by market discipline due to the moral hazard problem. Therefore, regulatory measures are necessary to ensure that individual financial institutions are not endangering the financial system.

Originality/value

This study contributes to the empirical literature on bank risk-taking in several ways. First, the characteristics of systemic risk and idiosyncratic risk are jointly analyzed. Second, the direction of causality of these two risk measures is examined. Moreover, this paper contributes to the discussion of the effect of competition on risk-taking.

Details

The Journal of Risk Finance, vol. 17 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

To view the access options for this content please click here
Article
Publication date: 6 February 2017

Xian Cheng, Liao Stephen Shaoyi and Zhongsheng Hua

The purpose of this paper is to measure the systemic importance of industry in the world economic system under the system-wide event – the crisis of 2008-2009, by viewing…

Abstract

Purpose

The purpose of this paper is to measure the systemic importance of industry in the world economic system under the system-wide event – the crisis of 2008-2009, by viewing this system as a weighted directed network of interconnected industries.

Design/methodology/approach

First, the authors investigate this crisis at three different levels based on network-related indicators: the “macro” global level, the “meso” country level, and the “micro” industry level. This investigation not only provides evidence for the systemic influence, that is, systemic risk, of the crisis, but also reveals the contagion mechanism of the crisis, which supports the stress testing. Second, the authors use a network-related business intelligence algorithm, the combined hyperlink-induced topic search (HITS) algorithm, to measure the contribution of a given individual industry to the overall risk of the economic system or, in other words, the systemic importance of the individual industry.

Findings

The HITS algorithm considers both the market information and the interconnectedness of the industries. Based on the stress testing, the performance of the combined HITS is compared with the purely market-based systemic risk measurement. The results show that the combined HITS outperforms the baseline in finding the top N systemically important industries.

Practical implications

The combined HITS algorithm provides a novel network-based perspective of systemic risk measurement.

Originality/value

Measuring the systemic importance based on the combined HITS algorithm can help managers and regulators design effective risk management policies. In this respect, the work initiates a research direction of studying the systemic risk in a business system based on a network-related business intelligence algorithm because the business system can be viewed as an interconnected network.

Details

Industrial Management & Data Systems, vol. 117 no. 1
Type: Research Article
ISSN: 0263-5577

Keywords

To view the access options for this content please click here
Article
Publication date: 7 August 2021

Juhi Gupta and Smita Kashiramka

Systemic risk has been a cause of concern for the bank regulatory authorities worldwide since the global financial crisis. This study aims to identify systemically…

Abstract

Purpose

Systemic risk has been a cause of concern for the bank regulatory authorities worldwide since the global financial crisis. This study aims to identify systemically important banks (SIBs) in India by using SRISK to measure the expected capital shortfall of banks in a systemic event. The sample size comprises a balanced data set of 31 listed Indian commercial banks from 2006 to 2019.

Design/methodology/approach

In this study, the authors have used SRISK to identify banks that have a maximum contribution to the systemic risk of the Indian banking sector. Leverage, size and long-run marginal expected shortfall (LRMES) are used to compute SRISK. Forward-looking LRMES is computed using the GJR-GARCH-dynamic conditional correlation methodology for early prediction of a bank’s contribution to systemic risk.

Findings

This study finds that public sector banks are more vulnerable to macroeconomic shocks owing to their capital inadequacy vis-à-vis the private sector banks. This study also emphasizes that size should not be used as a standalone factor to assess the systemic importance of a bank.

Originality/value

Systemic risk has attracted a lot of research interest; however, it is largely limited to the developed nations. This paper fills an important research gap in banking literature about the identification of SIBs in an emerging economy, India. As SRISK uses both balance sheet and market-based information, it can be used to complement the existing methodology used by the Reserve Bank of India to identify SIBs.

Details

Journal of Financial Regulation and Compliance, vol. 29 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

1 – 10 of over 11000