Assessment of the Systemic Risk in the German Banking Industry

Katarzyna Kuziak and Krzysztof Piontek

Chapter 14 in Modern Finance and Risk Management:Festschrift in Honour of Hermann Locarek-Junge, 2022, pp 313-332 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In this chapter, systemic risk refers in a very narrow sense to a risk of breakdown or major dysfunction in a banking system. Some researchers use the term to include the potential insolvency of a major entity in the financial system or its component. In this work, financial indicators and the approach of Conditional Value-at-Risk (CoVaR) is used to empirically analyse the systemic risk for the German financial system. Results indicate that the differences in the systemic risk assessment by using composite measure and delta CoVaR may occur as the result of the composite measure being determined by selected financial ratios, the adopted normalisation and ordering method, and the group of banks. The relationship between a bank’s financial condition and systemic risk is not obvious for complex financial systems, and both approaches use data of different frequency, which affects quality of the assessment.

Keywords: Finance; Risk Management; Commodities; Energy Finance; Risk; Cryptocurrencies; Asset Management; Banking; Behavioral Finance; Behavioural Finance; Markowitz; Portfolio Selection; Asset Allocation; Crowdfunding; COVID; Pandemic; Corona; Investment Strategies; Low-Risk Investments; Social Banks; Excess Liquidity; Cost of Capital; Utilities; Network Industries; Private Equity; Small and Medium-Sized Enterprises; Black Swan; Statistical Inference; Maximum Likelihood; Bayesian Methods; Tail Risks; Conditional Value-at-Risk; Tail Nonlinearly Transformed Risk; Capital Constraints; Bank Regulation; Subjective Risk Assessment; Expert Knowledge; Model Risk; Risk Factors; Option Pricing; Volatility; Resilience; Supply Chains; Disruption; Systemic Risk; Oil; Renewable Energies; Corporate Risk Management; Power Purchase Agreements; Gold; Precious Metals; Dynamic Correlation; Mixed Data Sampling (search for similar items in EconPapers)
JEL-codes: G11 G3 G32 G4 (search for similar items in EconPapers)
Date: 2022
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