Systemic Loss: A Measure of Financial Stability (in English)

Martin Cihak ()

Czech Journal of Economics and Finance (Finance a uver), 2007, vol. 57, issue 1-2, 5-26

Abstract: The literature on modeling defaults in individual financial institutions has expanded dramatically. However, the links between defaults in individual institutions and system-wide crises remain inadequately understood, despite some recent attempts to transpose the existing indicators of the probability of default in individual institutions to the systemic level. The paper argues that any measure of systemic stability should incorporate three elements: probabilities of failure in individual financial institutions, loss given default in financial institutions, and correlation of defaults across institutions. It contains a review of existing measures of financial stability and finds that they generally fall short of this standard. The author demonstrates that looking at the distribution of systemic loss can lead to a clearer differentiation of cases of stability and instability.

Keywords: failures; financial sector; market-based indicators; soundness indicators (search for similar items in EconPapers)
JEL-codes: G18 G28 K20 L50 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://journal.fsv.cuni.cz/storage/1073_fau_1_2_07_00000000005.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:57:y:2007:i:1-2:p:5-26

Access Statistics for this article

More articles in Czech Journal of Economics and Finance (Finance a uver) from Charles University Prague, Faculty of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().