Should SIFIs protect themselves from systemic risk?

Federico Galizia
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Federico Galizia: Chief Risk Officer, The Inter-American Development Bank, USA

Journal of Risk Management in Financial Institutions, 2015, vol. 8, issue 1, 27-33

Abstract: With regulatory action on systemically important financial institutions (SIFIs) in the background, we go back to first principles and look at the implications of economic capital models for systemic risk management. Economic capital analysis of SIFIs’ exposure to one another puts into question a number of commonly held assumptions, especially when it comes to the capital absorbed at high confidence levels by bilateral derivatives exposures. We advocate concentration pricing, asymmetric economic capital requirements and a renewed emphasis on economic risk taking as ways in which SIFIs can mitigate their own exposure to systemic risk.

Keywords: SIFIs; concentration; systemic risk; economic capital; derivatives; wrong-way risk (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2015:v:8:i:1:p:27-33

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