Quantifying Systemic Risk in the Presence of Unlisted Banks: Application to the Dutch Financial Sector

Daniel Dimitrov () and Sweder van Wijnbergen

No 22-034/VI, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We propose a credit portfolio approach for evaluating systemic risk and attributing it across institutions. We construct a model that can be estimated from high-frequency CDS data. This captures risks from privately held institutions and cooperative banks, extending approaches that rely on information from the public equity market. We account for correlated losses between the institutions, overcoming a modeling weakness in earlier studies. A latent risk factor with heterogeneous exposures fitted on the implied default probabilities quantifies the potential for joint distress and losses. We apply the model to a universe of Dutch banks and insurers.

Keywords: Systemic risk; CDS rates; implied market measures; financial institutions (search for similar items in EconPapers)
JEL-codes: G01 G18 G20 G38 (search for similar items in EconPapers)
Date: 2022-05-28
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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