A unfi ed view of systemic risk: detecting SIFIs and forecasting the fi nancial cycle via EWSs

Alessandro Spelta ()
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Alessandro Spelta: Università Cattolica del Sacro Cuore

No def036, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: Following the defi nition of systemic risk by the Financial Stability Board, the International Monetary Fund and the Bank for International Settlements, this paper proposes a method able to simultaneously address the two dimensions in which this risk materializes: namely the cross-sectional and the time dimension. The method is based on the W-TOPHITS algorithm, that exploits the connectivity information of an evolving network, and decomposes its tensor representation as the outer product of three vectors: borrowing, lending and time scores. These vectors can be interpreted as indices of the systemic importance of borrowing and lending associated with each fi nancial institution and of the systemic importance associated with each period, coherently with the realization of the whole network in that period. The time score, being able to simultaneously consider the temporal distribution of the whole traded volume over time as well as the spatial distribution of the transactions between players in each period, turns out to be a useful Early Warning Signal of the fi nancial crisis. The W-TOPHITS is tested on the e-MID interbank market dataset and on the BIS consolidated banking statistics with the aim of discovering Systemically Important Financial Institutions and to show how the time score is able to signal a change in the bipartite network of borrowers and lenders that heralds the fall of the traded volume that occurred during the 2007/2009 nancial crisis.

Keywords: Systemic Risk; Tensor; Early Warning Signals; Evolving Networks. (search for similar items in EconPapers)
JEL-codes: C53 C63 G01 G17 (search for similar items in EconPapers)
Pages: 29
Date: 2016-01
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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