Measuring CoVaR: An Empirical Comparison

Michele Leonardo Bianchi () and Alberto Maria Sorrentino ()
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Michele Leonardo Bianchi: Bank of Italy
Alberto Maria Sorrentino: Bank of Italy

Computational Economics, 2020, vol. 55, issue 2, No 6, 528 pages

Abstract: Abstract Recent literature has proposed a market-based measure to assess the contribution of a single bank to the systemic risk, i.e. the delta conditional value-at-risk ($$\Delta { CoVaR}$$ΔCoVaR). This measure could be useful to control the dynamics of systemic risk as perceived by the market. We estimate the $$\Delta { CoVaR}$$ΔCoVaR of Italian and main European banks over the time span from January 2007 to December 2018 by considering three possible methodologies: (1) the quantile regression; (2) a closed form formula; (3) a non-parametric method. The estimates based on closed form formula do not differ substantially from those of the other two methodologies, moreover they provide more robust results. Furthermore, we compare the ranking derived by the $$\Delta { CoVaR}$$ΔCoVaR with the global systemically important banks (GSIBs) buckets determining additional loss absorbency requirements. We show that there are differences in the ranking defined by the $$\Delta { CoVaR}$$ΔCoVaR and the GSIBs bucket allocation provided by the Financial Stability Board even if the $$\Delta { CoVaR}$$ΔCoVaR seems to be able to divide the good from the bad, from a systemic risk perspective.

Keywords: Banking regulation; Systemic risk; Systemically important financial institutions; Delta conditional value-at-risk; Value-at-risk (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s10614-019-09901-2

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