Systemic Risk Contributions
Abstract
We adopt a systemic risk indicator measured by the price of insurance against systemic financial distress and assess individual banks' marginal contributions to the systemic risk. The methodology is applied to the 19 bank holding companies covered by the US Supervisory Capital Assessment Program (SCAP), with the systemic risk indicator peaking around 1.1 trillion USD in March 2009. Our systemic risk contribution measure shows interesting similarity and divergence with the SCAP expected loss measure. In general, we find that bank's contribution to the systemic risk is roughly linear in its default probability, but highly nonlinear with respect to institution size and asset correlation.