Can We Prove a Bank Guilty of Creating Systemic Risk? A Minority Report

Jon Danielsson, Kevin R. James, Marcela Valenzuela and Ilknur Zer

Journal of Money, Credit and Banking, 2016, vol. 48, issue 4, 795-812

Abstract: Because increasing a bank's capital requirement to improve the stability of the financial system imposes costs upon the bank, a regulator should ideally be able to prove beyond a reasonable doubt that banks classified as systemically risky really do create systemic risk before subjecting them to this capital punishment. Evaluating the performance of two leading systemic risk models, we show that estimation error alone prevents the reliable identification of the most systemically risky banks. We conclude that it will be a considerable challenge to develop a riskometer that is sound and reliable enough to provide an adequate foundation for macroprudential policy.

Date: 2016
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Citations: View citations in EconPapers (17)

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https://doi.org/10.1111/jmcb.12318

Related works:
Working Paper: Can we prove a bank guilty of creating systemic risk? A minority report (2016)
Working Paper: Can we prove a bank guilty of creating systemic risk? A minority report (2015)
Working Paper: Can we prove a bank guilty of creating systemic risk? A minority report (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:48:y:2016:i:4:p:795-812

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