Using Market Information for Banking System Risk Assessment
Helmut Elsinger,
Alfred Lehar () and
Martin Summer
MPRA Paper from University Library of Munich, Germany
Abstract:
We propose a new method for the analysis of systemic stability of a banking system relying mostly on market data. We model both asset correlations and interlinkages from interbank borrowing so that our analysis gauges two major sources of systemic risk: correlated exposures and mutual credit relations that may cause domino effects of insolvencies. We apply our method to a data set of the ten major UK banks and analyze insolvency risk over a one-year horizon. We also suggest a stress-testing procedure by analyzing the conditional asset return distribution that results from the hypothetical failure of individual institutions in this system. Rather than looking at individual bank defaults ceteris paribus, we take the change in the asset return distribution and the resulting change in the risk of all other banks into account. This takes previous stress tests of interlinkages a substantial step further.
Keywords: Systemic Risk; Financial Stability; Stress Testing; Interbank Market (search for similar items in EconPapers)
JEL-codes: G0 G00 (search for similar items in EconPapers)
Date: 2005-09-19
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)
Published in International Journal of Central Banking Number 1.Volume(2006): pp. 137-165
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/817/1/MPRA_paper_817.pdf original version (application/pdf)
Related works:
Journal Article: Using Market Information for Banking System Risk Assessment (2006) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:817
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().