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Ranking consistency of systemic risk measures: a simulation-based analysis in a banking network model

  • Peter GrundkeEmail author
Original Research

Abstract

In a banking network model, I analyse the ranking consistency of common systemic risk measures (SRMs). In contrast to previous studies, this model-based analysis offers the advantage that the sensitivity of the ranking consistency with respect to bank and network characteristics can easily be checked. The employed network model accounts, among others, for bank insolvencies as well as illiquidities, stochastic dependencies of non-bank loans as well as of liquidity buffer assets across various banks, bank rating-dependent volumes of deposits and interbank liabilities, and the funding liquidity reducing effect of fire sales of other banks. Within the assumed banking network model, I find that, in general, the ranking consistency (measured by the rank correlation) of various SRMs is rather low. A further finding is that the ranking consistency can significantly vary in statistical terms, for example for an increasing correlation between the returns of the liquidity buffer assets across banks, an increasing volatility of these assets or an increasing default rate in the non-bank loan portfolios. However, forecasting which effect a specific change in parameters, bank behavior or network characteristics has on the ranking consistency of SRMs seems to be difficult because the sign of the effect can be different for different pairs of SRMs. Furthermore, the economic significance of these changes on the overall ranking consistency as measured by Kendall’s coefficient of concordance in general is rather low.

Keywords

Banking network model Credit risk Funding risk Market risk Systemic risk 

JEL Classification

G01 G21 G28 

Notes

Acknowledgements

I thank Michael Abendschein for excellent research assistance. For helpful comments, I thank an anonymous reviewer, Matthias Bank, Jens Dick-Nielsen, Thomas Gehrig, Maria-Chiara Iannino, Alois Knobloch, Jochen Lawrenz, Andreas Pfingsten and Bernhard Schwetzler as well as participants of the annual meeting of the German Academic Association for Business Research in Munich 2016, the EUROFIDAI-AFFI Paris December Finance Meeting in 2016 and the workshop “Regulation as a factor of systemic risk” organized by the research group on ‘Financial Crisis’ of the Österreichische Forschungsgemeinschaft in Innsbruck 2016.

Supplementary material

11156_2018_732_MOESM1_ESM.doc (372 kb)
Supplementary material 1 (DOC 371 kb)

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Chair of Banking and Finance, Osnabrück UniversityOsnabrückGermany

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