Systemic risk contributions: a credit portfolio approach

Klaus Düllmann and Natalia Puzanova
Authors registered in the RePEc Author Service: Natalia Tente

No 2011,08, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank

Abstract: We put forward a Merton-type multi-factor portfolio model for assessing banks' contributions to systemic risk. This model accounts for the major drivers of banks' systemic relevance: size, default risk and correlation of banks' assets as a proxy for interconnectedness. We measure systemic risk in terms of the portfolio expected shortfall (ES). Banks' (marginal) risk contributions are calculated based on partial derivatives of the ES in order to ensure a full risk allocation among institutions. We compare the performance of an importance sampling algorithm with a fast analytical approximation of the ES and the marginal risk contributions. Furthermore, we show empirically for a portfolio of large international banks how our approach could be implemented to compute bank-specific capital surcharges for systemic risk or stabilisation fees. We find that size alone is not a reliable proxy for the systemic importance of a bank in this framework. In order to smooth cyclical fluctuations of the risk measure, we explore a time-varying confidence level of the ES.

Keywords: systemic risk contributions; systemic capital charge; expected shortfall; importance sampling; granularity adjustment (search for similar items in EconPapers)
JEL-codes: C15 C63 E58 G01 G21 (search for similar items in EconPapers)
Date: 2011
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 (4)

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Journal Article: Systemic risk contributions: A credit portfolio approach (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp2:201108

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