Comparison and evaluation of systemic risk measures

The consequences of the global financial crisis unveiled the shortcomings in the regulation and monitoring of systemic risk. The issue with regulating and measuring systemic risk is the fact there are many definitions and consequently many ways to quantify systemic risk. This thesis empirically compares four methods of measuring cross-sectional systemic risk in the European banking system (MES, ΔCoVaR, SRISK and DIP). Furthermore, relations between these measures and the underlying banks’ characteristics are investigated using VAR method and panel models. The different measures are shown to be good indicators of systemic risk for the overall banking system, but show differences on individual bank level. The differences can be explained by the underlying inputs of measuring systemic risk. Market-to-book and leverage are found to be important bank variables to consider for regulation, as these ratios drive the systemic risk of one quarter ahead. Other bank characteristics show mixed results across different systemic risk measures, which makes the interpretation rather difficult.