Measuring systemic risk across financial market infrastructures

Fuchun Li and Hector Perez-Saiz

Journal of Financial Stability, 2018, vol. 34, issue C, 1-11

Abstract: We measure systemic risk in the network of financial market infrastructures (FMIs) as the probability that two or more FMIs have a large credit risk exposure to a common FMI participant. We construct indicators of credit risk exposures in three main Canadian FMIs and use multivariate extreme value methods to estimate this probability. We find large differences in the levels of systemic risk across participants. Conditional on the participant being distressed, we re-estimate these probabilities and find that some participants create large exposures to FMIs, resulting in a larger level of systemic risk than the rest of the participants. Our results suggest that an appropriate oversight of FMIs may benefit from an in-depth system-wide analysis, which may have useful implications for the macroprudential regulation of the financial system.

Keywords: Credit risk exposure; Systemic risk; Financial stability; Financial market infrastructure; Extreme value theory; Clearing; Settlement (search for similar items in EconPapers)
JEL-codes: C58 G21 G23 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:34:y:2018:i:c:p:1-11

DOI: 10.1016/j.jfs.2017.08.003

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