Systemic risk in Europe: deciphering leading measures, common patterns and real effects

A compositional analysis of systemic risk in European financial institutions

“…In this case, CoDa analysis appears to be consistent with some recent research based on absolute measures of systemic risk. In particular, Stolbov and Shchepeleva ( 2018 ) have argued that there may be no direct impact of the European Central Bank monetary policy on the systemic risk of countries which maintain national currencies other than the Euro; Dreyer et al. ( 2018 ) have outlined some unique features of the Danish banking system which may influence the country’s systemic risk exposure.…”

“…Both the regulators and the academic community have usually quantified the “size” of systemic risk using either monetary units or scores: popular indicators expressed in monetary units include, among others, SRISK and CoVaR-based measures (see, e.g., Stolbov and Shchepeleva 2018 , for a comparative analysis); conversely, a prominent example of score-based methodology is the one adopted by the Basel Committee on Banking Supervision (Basel Committee on Banking Supervision 2018 ). Beyond those size indicators, however, it is important to recognize that systemic risk also has a “compositional” nature, due to its dependence on multiple parts that constitute the whole system.…”

“…Focusing on firms listed in the EuroStoxx 50 Index, Petrella et al (2018) find that, between 2008 and 2017, the systemic risk contribution of France dominated all other countries, followed by Germany, Italy, and Spain. Stolbov and Shchepeleva (2018) investigate salient features of European countries with a view on identifying common patterns and real effects of systemic risk on the European economy. The frailty of the European financial and banking system is specifically addressed in Billio et al (2016), with a proposal for the construction of an entropy-based early warning indicator of systemic risk.…”

A global perspective on macroprudential policy interaction with systemic risk, real economic activity, and monetary intervention

“…The SRISK measure fares better than the alternative systemic risk measures, such as the marginal expected shortfall (MES) by Acharya et al (2017) or delta conditional value-at-risk (∆CoVaR) by Adrian and Brunnermeier (2016), in several empirical horse races conducted to test for the relative consistency and informativeness of such measures (e.g., Dissem and Lobez 2020;Grundke and Tuchsherer 2019;Stolbov and Shchepeleva 2018). Particularly, we prefer the SRISK measure as a systemic risk indicator, as it builds on both balance sheet and market data, thereby reflecting market conditions and managerial decisions by financial institutions (Kamani, 2019).…”

Proper measures of connectedness

“…In the recent literature, various other different approaches have been proposed for systemic risk detection in finance: for qualitative models see Gaytán and Johnson (2002), for network theory based models see Elsinger et al (2006), for artificial intelligence based models see Chin-Shien et al (2006), for machine learning based approaches see Manasse and Roubini (2009), for the scenario analysis framework see Aikman et al (2009), for principal components analysis approaches see Kritzman et al (2011) and Zheng et al (2012), for market based measures and the use of marginal expected shortfall see Pederzoli and Torricelli (2017) and Acharya et al (2017), for pivotal systemic risk measures see Stolbov and Shchepeleva (2018).…”