[en] We assess the efficacy of market-based systemic risk measures that rely on US financial firms’ stock return comovements with market- or sector-wide returns under stress from 1895 to 2023. Stress episodes are identified using corporate bond spread widening and narrative dating, spanning from the Panic of 1907 to the Banking Stress of 2023. Measures observed prior to the onset of stress episodes predict market outcomes (realized volatility and returns), balance sheet outcomes (lending, profitability, and run risk), and bank failures. Specifically, the measures are: (a) particularly effective in capturing the cross-sectional ranking of institutions conditional on a stress episode, rather than aggregate outcomes; (b) more informative when stress episodes are severe; and (c) relevant for both banks and nonbank financial institutions, although measures incorporating market leverage are especially informative for banks. A comparative analysis shows that market-based indicators offer information that is distinct from, and complementary to, traditional balance sheet metrics used in supervisory and macroprudential risk assessment.
Disciplines :
Finance
Author, co-author :
Acharya, Viral V.; National Bureau of Economic Research, Cambridge, Massachusetts, USA ; Stern School of Business, New York University, New York, NY, USA ; Centre for Economic Policy Research, London, United Kingdom ; European Corporate Governance Institute, Brussels, Belgium
Brunnermeier, Markus K.; Department of Economics, Princeton University, Princeton, New Jersey, USA ; Peterson Institute for International Economics, Washington, DC, USA ; Münchener Gesellschaft zur Förderung der Wirtschaftswissenschaft (CESifo GmbH), Munich, Germany ; Centre for Economic Policy Research, London, United Kingdom ; National Bureau of Economic Research, Cambridge, Massachusetts, USA
PIERRET, Diane ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF) ; Centre for Economic Policy Research, London, United Kingdom
External co-authors :
yes
Language :
English
Title :
Systemic Risk Measures: From the Panic of 1907 to the Banking Stress of 2023
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