Systemic risk in the banking system: Measuring and interpreting the results
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Date
2019
Authors
Bezrodna, Olena
Ivanova, Zoia
Onyshchenko, Yulia
Lypchanskyi, Volodymyr
Rymar, Serhii
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
Highly concentrated banking system risks and the cumulative effect due to their accumulation act as a driver for improving the macro-prudential policy implemented by central
banks. For this reason, an effectively and comprehensively assessed systemic risk in the
banking system is declared an express condition for the early detection of its production
sources and blocking of potential spreading channels, reducing the possible implementation. In light of this, the article develops an approach to the aggregated systemic risk assess-
ment and interpretation of its results. The proposed approach is based on the considered
influence exerted by financial risks of systemically important banks on the destabilized
banking system and interconnections between banks in the context of the possible crisis impulse spreading. The following steps should be accomplished to form an aggregated
systemic risk indicator in the banking system. Firstly, the differentiation of systemically
important banks by the degree of their systemic importance; secondly, an integral assessment of the bank operation riskiness within certain bank groups; thirdly, the cumulative
composition of the corresponding integral indicators, taking into account their weighting
coefficients based on two criteria, namely values of the systemic importance indicator differentiating the bank groups, and the correlation of their risks. Interpreting the quantitative
measurement results with regard to the systemic risk in the banking system is followed by
the recommendations below: the systemic risk grading into high, medium and low levels and the respective definition of the threshold aggregated systemic risk indicator value
which informs about the possible systemic crisis when approached; justification of the selected supervision regime types (strengthened, moderate or weakened) for systemically important banks, depending on the riskiness level specific for their operation and the systemic
importance degree. The developed approach to measuring the systemic risk by means of
constructing an aggregated indicator and interpreting the obtained results was being tested
considering the financial risk indicators of the systemically important banks in Ukraine
during 2009–2018.
Description
Keywords
systemic risk, banking system, systemically important banks (SIBs), financial risks, macro-prudential policy, article
Citation
Systemic risk in the banking system: Measuring and interpreting the results [electronic resource] / Bezrodna O., Ivanova Z., Onyshchenko Y., Lypchanskyi V., Rymar S. // Banks and Bank Systems. - 2019. - Vol. 14, Issue 3. - P. 34-47.