No abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The refereeing process of this paper has been coordinated by a team composed of Gerhard Rünstler, Kalin Nikolov and Bernd Schwaab (all ECB). Terms of use: Documents in EconStor mayThe paper is released in order to make the research of MaRs generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB or of the ESCB. We then ask whether the cross section of the MES can help to identify ex ante, i.e. before a crisis unfolds, which institutions are the more likely to su¤er the most severe losses ex post, i.e. once it has unfolded. Unfortunately, using the recent crisis as a natural experiment, we …nd that standard balance-sheet metrics like the tier one solvency ratio are better able than the MES to predict equity losses conditionally to a true crisis. AcknowledgementsKeywords: MES, systemic risk, tail correlation, balance sheet ratios, panel.JEL Classi…cation: C5, E44, G2.1 Non technical summaryThe Finally, using the 2007-2009 crisis as a natural experiment, we ask whether the MES as measured before the crisis (i.e. taking an ex ante view) would have been useful to identify which institutions were the most likely to be severely hit should a crisis occur. Based on cross-sectional rank correlations as well as cross-sectional regressions, we conclude that some standard balance-sheet ratios already routinely monitored by regulators, like the ratio of tier-one capital to risk-weighted assets would have been more useful than the MES at predicting which banks were bound to su¤er the most severe equity losses during the crisis.3

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The refereeing process of this paper has been coordinated by a team composed of Gerhard Rünstler, Kalin Nikolov and Bernd Schwaab (all ECB). Terms of use: Documents in EconStor mayThe paper is released in order to make the research of MaRs generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB or of the ESCB. We then ask whether the cross section of the MES can help to identify ex ante, i.e. before a crisis unfolds, which institutions are the more likely to su¤er the most severe losses ex post, i.e. once it has unfolded. Unfortunately, using the recent crisis as a natural experiment, we …nd that standard balance-sheet metrics like the tier one solvency ratio are better able than the MES to predict equity losses conditionally to a true crisis. AcknowledgementsKeywords: MES, systemic risk, tail correlation, balance sheet ratios, panel.JEL Classi…cation: C5, E44, G2.1 Non technical summaryThe Finally, using the 2007-2009 crisis as a natural experiment, we ask whether the MES as measured before the crisis (i.e. taking an ex ante view) would have been useful to identify which institutions were the most likely to be severely hit should a crisis occur. Based on cross-sectional rank correlations as well as cross-sectional regressions, we conclude that some standard balance-sheet ratios already routinely monitored by regulators, like the ratio of tier-one capital to risk-weighted assets would have been more useful than the MES at predicting which banks were bound to su¤er the most severe equity losses during the crisis.3

Public debt is considered sustainable if discounted net repayments are expected to cover the initial debt issuance, i.e. if the government's inter-temporal budget constraint is expected to hold. With risk-averse lenders and an uncertain economic environment, Bohn (1995) stresses that this constraint relies on a stochastic discount factor which depends on lenders' preferences. To get round the difficulty related to the specification of private agents' preferences in empirical analysis, Bohn (1998) suggests to estimate fiscal reaction functions describing how primary surplus reacts to indebtedness. After having solved the econometric issues arising when primary surplus and`debt have a very different persistence (with a nonparametric approach) or are both integrated (with parametric tests), we estimate fiscal reaction functions for France and Greece. There remain important limitations and interpretation difficulties that are common to all econometric sustainability tests.