Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Bank Holdings and Systemic Risk
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.
Cite this item
Celso Brunetti & Jeffrey H. Harris & Shawn Mankad, Bank Holdings and Systemic Risk, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2018-063, 04 Sep 2018.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
Keywords: Systemic risk ; Concentration index ; Bank holdings ; Similarity index
This item with handle RePEc:fip:fedgfe:2018-63
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