Back to the Future: Backtesting Systemic Risk Measures during Historical Bank Runs and the Great Depression

Eric Ghysels, Benjamin Chabot, Christopher Kurz and Christian Brownlees

No 12178, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We evaluate the performance of two popular systemic risk measures, CoVaR and SRISK, during eight financial panics in the era before FDIC insurance. Bank stock price and balance sheet data were not readily available for this time period. We rectify this shortcoming by constructing a novel dataset for the New York banking system before 1933. Our evaluation exercise focuses on assessing whether systemic risk measures were able to detect systemically important financial institutions and to provide early warning signals of aggregate financial sector turbulence. The predictive ability of CoVaR and SRISK is measured controlling for a set of commonly employed market risk measures and bank ratios. We find that CoVaR and SRISK help identifying systemic institutions in periods of distress beyond what is explained by standard risk measures up to six months prior to the panic events. Increases in aggregate CoVaR and SRISK precede worsening conditions in the financial system; however, the evidence of predictability is weaker.

Keywords: Systemic risk; Financial crises; Risk measures (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 N21 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba, nep-fmk, nep-his and nep-rmg
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Citations: View citations in EconPapers (6)

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Journal Article: Back to the future: Backtesting systemic risk measures during historical bank runs and the great depression (2020)
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