Monitoring Banking System Fragility with Big Data
Galina Hale and
Jose Lopez ()
No 2018-1, Working Paper Series from Federal Reserve Bank of San Francisco
The need to monitor aggregate financial stability was made clear during the global financial crisis of 2008-2009, and, of course, the need to monitor individual financial firms from a microprudential standpoint remains. In this paper, we propose a procedure based on mixed-frequency models and network analysis to help address both of these policy concerns. We decompose firm-specific stock returns into two components: one that is explained by observed covariates (or fitted values), the other unexplained (or residuals). We construct networks based on the co-movement of these components. Analysis of these networks allows us to identify time periods of increased risk concentration in the banking sector and determine which firms pose high systemic risk. Our results illustrate the efficacy of such modeling techniques for monitoring and potentially enhancing national financial stability.
JEL-codes: C32 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-big and nep-rmg
Date: 2017-09-15, Revised 2018-04-23
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2018-01
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