Title: A theoretical regression tree for classifying risky financial institutions
Authors: Carmela Cappelli - University of Naples Federico II (Italy) [presenting]
Francesca Di Iorio - University of Naples Federico II (Italy)
Angela Maddaloni - ECB (Germany)
Pierpaolo Durso - Universita di Roma La Sapienza (Italy)
Abstract: A recursive partitioning approach to identify groups of risky financial institutions is proposed by using a synthetic indicator built on the information arising from a sample of pooled systemic risk measures. The composition and amplitude of the risky groups changes over time, emphasizing the periods of high systemic risk stress. We also calculate the probability that a financial institution can change risk group over the next month and show that a firm belonging to the lowest or highest risk group has in general a high probability to remain in that group.