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Modelling Systemically Important Banks vis-à-vis the Basel Prudential Guidelines

M. Zulkifli Salim () and Kevin Daly ()
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M. Zulkifli Salim: Financial Services Authority, Jakarta 12710, Indonesia
Kevin Daly: School of Business, Western Sydney University, Penrith, NSW 2151, Australia

JRFM, 2021, vol. 14, issue 7, 1-20

Abstract: Our paper investigates Indonesia’s systemically important banks (SIBs) using theoretical approaches—CoVaR, marginal expected shortfall (MES), and SRISK—to compare with the Basel guidelines as benchmark. We use Indonesian banks’ market and supervisory data over the 2008–2019 period. The research aims to seek intertheoretical model interaction and SIB ranking in concordance with the Basel guidelines as applied by a bank supervisor. The findings show that SRISK produced a more consistent ranking compared with CoVaR and MES. CoVaR and MES had higher intermodel correlation converted to 59% similarity in rankings. Further, all theoretical models are in line with the Basel guidelines, where the closest approximation is at 47%. The results indicate that policy makers could use scholarly models as validation tools and help improve supervision decision to identify systemically important institutions.

Keywords: systemic bank; systemic risk; risk modelling; Basel; bank supervision (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
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