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Board of Governors of the Federal Reserve System (U.S.)
Finance and Economics Discussion Series
Bank Holdings and Systemic Risk
Celso Brunetti
Jeffrey H. Harris
Shawn Mankad
Abstract

The recent financial crisis has focused attention on identifying and measuring systemic risk. In this paper, we propose a novel approach to estimate the portfolio composition of banks as function of daily interbank trades and stock returns. While banks’ assets are reported to regulators and/or the public at relatively low frequencies (e.g. quarterly or annually), our approach estimates bank asset holdings at higher frequencies which allows us to derive precise estimates of (i) portfolio concentration within each bank—a measure of diversification—and (ii) common holdings across banks—a measure of market susceptibility to propagating shocks. We find evidence that systemic risk measures derived from our approach lead, in a forecasting sense, several commonly used systemic risk indicators.


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Celso Brunetti & Jeffrey H. Harris & Shawn Mankad, Bank Holdings and Systemic Risk, Board of Governors of the Federal Reserve System (U.S.), Finance and Economics Discussion Series 2018-063, 04 Sep 2018.
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Keywords: Systemic risk ; Concentration index ; Bank holdings ; Similarity index
DOI: 10.17016/FEDS.2018.063
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