Systemic Risk Score: A Suggestion

Christophe Hurlin and Christophe Perignon ()

No 1005, HEC Research Papers Series from HEC Paris

Abstract: We identify a potential bias in the methodology disclosed in July 2013 by the Basel Committee on Banking Supervision (BCBS) for identifying systemically important financial banks. Contrary to the original objective, the relative importance of the five categories of risk importance (size, cross-jurisdictional activity, interconnectedness, substitutability/financial institution infrastructure, and complexity) may not be equal and the resulting systemic risk scores are mechanically dominated by the most volatile categories. In practice, this bias proved to be serious enough that the substitutability category had to be capped by the BCBS. We show that the bias can be removed by simply standardizing each input prior to computing the systemic risk scores.

Keywords: G-SIFI; regulatory capital; Basel Committee (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2013-10-09
New Economics Papers: this item is included in nep-cba, nep-cfn and nep-rmg
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Systemic Risk Score: A Suggestion (2013)
Working Paper: Systemic Risk Score: A Suggestion (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1005

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