Too-big-to-fail Reforms and Systemic Risk

Kakuho Furukawa, Hibiki Ichiue (), Yugo Kimura and Noriyuki Shiraki ()
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Kakuho Furukawa: Bank of Japan
Yugo Kimura: Bank of Japan

No 21-E-1, Bank of Japan Working Paper Series from Bank of Japan

Abstract: We examine the effects of too-big-to-fail reforms using ĢCoVaR and SRISK. Developments in these market-based systemic risk measures suggest that the reforms have led to a larger decline in the systemic risk contribution of global systemically important banks (G-SIBs) than of other banks. The systemic risk measures also suggest that the larger the systemic risk associated with a G-SIB, the more the reforms have led to a decline in its systemic risk. These findings are consistent with the objectives of the reforms and are validated by statistical analyses, including quantile panel regressions. We also highlight the importance of using data for a subset of financial institutions to adjust for the increase in data coverage when using popular estimates of SRISK. Furthermore, SRISK may overestimate systemic risk in recent years by ignoring the role of total loss absorbing capacity (TLAC)-eligible bonds.

Keywords: Too Big to Fail; Systemic Risk; Financial Regulations; CoVaR; SRISK (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-fmk
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