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Weighting on Systemic Important Banking (SIB) in Indonesia: The Official Versus PCA Approaches

Samsul Anwar ()
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Samsul Anwar: Department of Statistics, Universitas Syiah Kuala, Banda Aceh, Indonesia

Journal of Central Banking Theory and Practice, 2020, vol. 9, issue 2, 155-182

Abstract: In determining its Domestic Systemic Important Banking (D-SIB), Indonesia implemented the Global Systemic Important Banking (G-SIB) based on three of five indicators, those being size, interconnectedness, and complexity. Both the G-SIB and the Indonesian D-SIB use an equal weight for each indicator, that is, 1/5 and 1/3 respectively. However, the weight could be modified by using the eigenvector of the Principal Component Analysis (PCA). We showed that this new weighting system was better than the official weighting system (referred to in this paper as the POJK approach) based on the Financial Services Authority (OJK) regulation No.46/POJK.03/2015.

Keywords: Eigenvectors; Indonesia; Principal Component Analysis; Systemic Important Banking; Weighting (search for similar items in EconPapers)
JEL-codes: C38 E52 E58 (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:cbk:journl:v:9:y:2020:i:2:p:155-182