Financial Network Systemic Risk Contributions

Financial Network Systemic Risk Contributions

We propose the realized systemic risk beta as a measure of financial companies' contribution to systemic risk, given network interdependence between firms' tail risk exposures. Conditional on statistically pre-identified network spillover effects and market and balance sheet information, w...

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Bibliographic Details
Published in:Review of Finance Vol. 19; no. 2; pp. 685 - 738
Main Authors: Hautsch, N., Schaumburg, J., Schienle, M.
Format: Journal Article
Language:English
Published: Oxford Oxford University Press 01-03-2015
Subjects:
Beta
Financial institutions
Risk assessment
Statistical inference
Studies
United States > US
Online Access:Get full text
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Summary:We propose the realized systemic risk beta as a measure of financial companies' contribution to systemic risk, given network interdependence between firms' tail risk exposures. Conditional on statistically pre-identified network spillover effects and market and balance sheet information, we define the realized systemic risk beta as the total time-varying marginal effect of a firm's Value-at-risk (VaR) on the system's VaR. Statistical inference reveals a multitude of relevant risk spillover channels and determines companies' systemic importance in the US financial system. Our approach can be used to monitor companies' systemic importance, enabling transparent macroprudential supervision.
ISSN:1572-3097
1875-824X
DOI:10.1093/rof/rfu010