SAFE: An early warning system for systemic banking risk

Timothy Bianco, Ryan Eiben, Dieter Gramlich, Mikhail Oet, Stephen J. Ong and Jing Wang

No 1129, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper builds on existing microprudential and macroprudential early warning systems (EWSs) to develop a new, hybrid class of models for systemic risk, incorporating the structural characteristics of the fi nancial system and a feedback amplification mechanism. The models explain fi nancial stress using both public and proprietary supervisory data from systemically important institutions, regressing institutional imbalances using an optimal lag method. The Systemic Assessment of Financial Environment (SAFE) EWS monitors microprudential information from the largest bank holding companies to anticipate the buildup of macroeconomic stresses in the financial markets. To mitigate inherent uncertainty, SAFE develops a set of medium-term forecasting specifi cations that gives policymakers enough time to take ex-ante policy action and a set of short-term forecasting specifications for verification and adjustment of supervisory actions. This paper highlights the application of these models to stress testing, scenario analysis, and policy.

Keywords: Systemic risk; Liquidity (Economics) (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban, nep-cba, nep-for and nep-rmg
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Citations: View citations in EconPapers (4)

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Journal Article: SAFE: An early warning system for systemic banking risk (2013)
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