{
  "title": "Systemic Risk and Asymmetric Responses in the Financial Industry",
  "publication": "IMF Working Papers, June 1, 2012",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/systemic-risk-and-asymmetric-responses-in-the-financial-industry-25991",
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  "summary": "To date, an operational measure of systemic risk capturing non-linear tail comovement between system-wide and individual bank returns has not yet been developed.",
  "sections": [
    {
      "heading": "Summary and objective",
      "content": "- Proposes an extension of the CoVaR measure that captures the asymmetric response of the banking system to positive and negative shocks to the market-valued balance sheets of individual banks.\n- Argues that an operational measure of systemic risk capturing non-linear tail comovement between system-wide and individual bank returns had not yet been developed prior to this work.\n- Concludes that the asymmetric model produces much better estimates and fitting, and thus improves the capacity to monitor systemic risk."
    },
    {
      "heading": "Key empirical findings",
      "content": "- For the median of the sample of U.S. banks, the relative impact on the system of a fall in individual market value is sevenfold that of an increase.\n- The downward bias in systemic risk from ignoring this asymmetric pattern increases with bank size.\n- The conditional tail comovement between the banking system and a top decile bank which is losing market value is 5.4 larger than the unconditional tail comovement.\n- The conditional tail comovement for banks in the bottom decile is 2.2 (versus the unconditional tail comovement)."
    },
    {
      "heading": "Methodological contribution",
      "content": "- Extends the so-called CoVaR measure to capture asymmetric tail comovement between system-wide returns and individual bank returns.\n- Emphasizes modeling non-linear tail interdependence to improve estimation and fit of systemic-risk measures."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Monitoring: Adopt asymmetric CoVaR-style measures to improve the capacity to monitor systemic risk.\n- Risk assessment: Incorporate asymmetries in tail interdependence into systemic-risk assessment to avoid severe underestimation of systemic risk in a downward market.\n- Size sensitivity: Pay particular attention to larger banks, since the downward bias from ignoring asymmetries increases with bank size."
    },
    {
      "heading": "Metadata and classification (as provided)",
      "content": "- Authors: Germán López-Espinosa, Antonio Rubia, Laura Valderrama, Antonio Moreno\n- Date: June 1, 2012\n- Series: Working Paper No. 2012/152\n- Pages: 38\n- DOI: https://doi.org/10.5089/9781475504347.001\n- ISBN: 9781475504347\n- ISSN: 1018-5941\n- Subjects: Banking, Commercial banks, Econometric analysis, Financial institutions, Financial sector policy and analysis, Financial statements, Public financial management (PFM), Systemic risk, Treasury bills and bonds, Vector autoregression\n- Keywords: banking system; Commercial banks; CoVaR approach; CoVaR estimate; CoVaR framework; CoVaR function; CoVaR measure; CoVaR model; CoVaR prediction; CoVaR process; default premium; descriptive statistics; downside risk; Financial statements; Global; risk contribution; systemic risk; tail-risk dependence; time series; Treasury bills and bonds; Value at Risk; Vector autoregression; WP\n\nSource: Systemic Risk and Asymmetric Responses in the Financial Industry, IMF Working Papers 2012, 152 (2012).\n\n---\n\n Content in this bundle\n\n- Wp12152\n  - Wp12152 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp12152 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/systemic-risk-and-asymmetric-responses-in-the-financial-industry-25991"
    }
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    "Authors: Germán López-Espinosa, Antonio Rubia, Laura Valderrama, Antonio Moreno",
    "Published: June 1, 2012",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475504347.001",
    "Proposes an extension of the CoVaR measure that captures the asymmetric response of the banking system to positive and negative shocks to the market-valued balance sheets of individual banks.",
    "Argues that an operational measure of systemic risk capturing non-linear tail comovement between system-wide and individual bank returns had not yet been developed prior to this work.",
    "Concludes that the asymmetric model produces much better estimates and fitting, and thus improves the capacity to monitor systemic risk.",
    "For the median of the sample of U.S. banks, the relative impact on the system of a fall in individual market value is sevenfold that of an increase.",
    "The downward bias in systemic risk from ignoring this asymmetric pattern increases with bank size.",
    "The conditional tail comovement between the banking system and a top decile bank which is losing market value is 5.4 larger than the unconditional tail comovement.",
    "The conditional tail comovement for banks in the bottom decile is 2.2 (versus the unconditional tail comovement).",
    "Extends the so-called CoVaR measure to capture asymmetric tail comovement between system-wide returns and individual bank returns.",
    "Emphasizes modeling non-linear tail interdependence to improve estimation and fit of systemic-risk measures.",
    "Monitoring: Adopt asymmetric CoVaR-style measures to improve the capacity to monitor systemic risk.",
    "Risk assessment: Incorporate asymmetries in tail interdependence into systemic-risk assessment to avoid severe underestimation of systemic risk in a downward market.",
    "Size sensitivity: Pay particular attention to larger banks, since the downward bias from ignoring asymmetries increases with bank size.",
    "Authors: Germán López-Espinosa, Antonio Rubia, Laura Valderrama, Antonio Moreno",
    "Date: June 1, 2012",
    "Series: Working Paper No. 2012/152",
    "Pages: 38",
    "DOI: https://doi.org/10.5089/9781475504347.001",
    "ISBN: 9781475504347",
    "ISSN: 1018-5941",
    "Subjects: Banking, Commercial banks, Econometric analysis, Financial institutions, Financial sector policy and analysis, Financial statements, Public financial management (PFM), Systemic risk, Treasury bills and bonds, Vector autoregression",
    "Keywords: banking system; Commercial banks; CoVaR approach; CoVaR estimate; CoVaR framework; CoVaR function; CoVaR measure; CoVaR model; CoVaR prediction; CoVaR process; default premium; descriptive statistics; downside risk; Financial statements; Global; risk contribution; systemic risk; tail-risk dependence; time series; Treasury bills and bonds; Value at Risk; Vector autoregression; WP",
    "**Wp12152**"
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