Measuring Systemic Risk: Capital Shortfall and CSRISK

Jying‐Nan Wang, Yuan‐Teng Hsu, Joe‐Ming Lee and Chih‐Chun Chen

International Review of Finance, 2021, vol. 21, issue 1, 358-369

Abstract: This study proposes a new measure of systemic risk named CSRISK, which identifies a financial institution's capital shortfall under the worst scenario conditional on a substantial market decline. The CSRISK index requires only public financial data, including accounting and market trading information, which is time and cost effective. The empirical sample consists of 238 US banks over the time period 2003–2013. Overall, we find that it is increasing from 2004 to 2009 and then starts to slightly decrease. This systemic risk measure has the potential to be widely applied in the practical aspects of risk management and macroprudential policy making.

Date: 2021
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