The Financial Stress Index: Identification of Systemic Risk Conditions

Bianco, Timothy; Eiben, Ryan; Gramlich, Dieter; Oet, Mikhail V.; Ong, Stephen J.

doi:10.26509/frbc-wp-201130r3

Cited by 53 publications

(52 citation statements)

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“…While this index has been discontinued due to a data error, we focus on its credit market component, which is a simple combination of five interest rate spreads (between U.K. and U.S. Treasury bills, AAA corporate bonds and U.S. Treasuries, commercial paper and Treasury bills, and 10‐year U.S. Treasury notes versus three‐month U.S. Treasury bills) and the bid‐ask spread in U.S. Treasury bills (Oet et al. ()) . We classify individual days as stressed if the change in this index is more than 1.96 standard deviations (computed separately by subperiod) above its subperiod mean.…”

Section: Stressful Day Analysismentioning

confidence: 99%

Capital Commitment and Illiquidity in Corporate Bonds

Bessembinder¹,

Jacobsen

Maxwell

et al. 2018

The Journal of Finance

281

120

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We study trading costs and dealer behavior in U.S. corporate bond markets from 2006 to 2016. Despite a temporary spike during the financial crisis, average trade execution costs have not increased notably over time. However, dealer capital commitment, turnover, block trade frequency, and average trade size decreased during the financial crisis and thereafter. These declines are attributable to bank‐affiliated dealers, as nonbank dealers have increased their market commitment. Our evidence indicates that liquidity provision in the corporate bond markets is evolving away from the commitment of bank‐affiliated dealer capital to absorb customer imbalances, and that postcrisis banking regulations likely contribute.

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Section: Stressful Day Analysismentioning

confidence: 99%

Capital Commitment and Illiquidity in Corporate Bonds

Bessembinder¹,

Jacobsen

Maxwell

et al. 2018

The Journal of Finance

281

120

View full text Add to dashboard Cite

show abstract

“…Oet et al . ()). In particular, some near crisis episodes that provide information on asset price behaviour during stress may be missed.…”

Section: Construction Of the Indexmentioning

confidence: 94%

“…Some schemes construct subindexes on the basis of different markets or themes and then combine these subindexes into an aggregate index. Oet, Eiben, and Bianco () use such a modular technique that combines several series related to a particular market into a subindex and then combine these subindexes using a weighting scheme on the basis of Flow of Funds data (a market size approach). The Bank of America Merrill Lynch () FSI is constructed using subindexes based around different themes, such as risk, skews and flows.…”

Section: Construction Of the Indexmentioning

confidence: 99%

Using Policy Intervention to Identify Financial Stress

2013

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This paper describes the construction of a financial stress index (FSI). Our index incorporates the level, volatility and comovement of a variety of financial series, rather than a single dimension of the data. To determine which time periods are ones of notable financial stress and thus the relevant ones for determining the role of the level, volatility and comovement of our financial series, we use actions taken by policymakers. In addition to describing the construction of our FSI, we discuss issues relevant to the general construction of stress indexes such as how an FSI differs from a financial conditions index, the challenges of combining different financial series into a single measure and the role historical experience plays in index construction.

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“…This concept of financial stress extends Bordo, Dueker, and Wheelock (2000) notion of "an index of financial conditions" which studies whether aggregate price shocks are useful for dating financial instability. Oet et al (2011a) provide a historical review of the financial stress measures. In the context of this paper, supervision is defined plainly as the action and process of critical watching.…”

Section: Research Objectivesmentioning

confidence: 99%

Financial Stress Index: A Lens for Supervising the Financial System

Bianco

Gramlich

Oet

et al. 2012

Working Paper (Federal Reserve Bank of Cleveland)

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This paper develops a new fi nancial stress measure (Cleveland Financial Stress Index, CFSI) that considers the supervisory objective of identifying risks to the stability of the fi nancial system. The index provides a continuous signal of fi nancial stress and broad coverage of the areas that could indicate it. The construction methodology uses daily public market data collected from different sectors of fi nancial markets. A unique feature of the index is that it employs a dynamic weighting method that captures the changing relative importance of the different sectors of the fi nancial system. This study shows how the index can be applied to monitoring and analyzing fi nancial system conditions. Keywords: fi nancial system stability, systemic risk, fi nancial stress, fi nancial supervision, fi nancial stress index.

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The Financial Stress Index: Identification of Systemic Risk Conditions

Cited by 53 publications

References 0 publications

Capital Commitment and Illiquidity in Corporate Bonds

Capital Commitment and Illiquidity in Corporate Bonds

Using Policy Intervention to Identify Financial Stress

Financial Stress Index: A Lens for Supervising the Financial System

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