A0903
Title: Continuous monitoring of systemic risks
Authors: Timo Dimitriadis - Heidelberg University (Germany) [presenting]
Abstract: In the wake of numerous instances of financial market turmoil in recent decades, increasingly more attention has been paid to systemic risks. This holds for regulators (who became more concerned with the interconnectedness of banks in the banking system) as well as individual financial institutions (in seeking to avoid joint distress across trading desks or business units). Therefore, surveillance schemes are proposed for systemic risk, which allow the detection of changes in systemic risk in an online fashion. This is vital in taking timely countermeasures to avoid financial distress. The monitoring procedures allow multiple series at once to be monitored, thus increasing the likelihood and the speed with which early signs may be picked up. They hold size by construction, such that the null of correct systemic risk assessments is only rejected during the monitoring period with (at most) a pre-specified probability. Monte Carlo simulations illustrate the good finite-sample properties of the procedures. An empirical application to US banks during multiple crises demonstrates the usefulness of the surveillance schemes for both regulators and financial institutions.
