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Pitfalls in systemic-risk scoring

Benoit, Sylvain; Hurlin, Christophe; Pérignon, Christophe (2019), Pitfalls in systemic-risk scoring, Journal of Financial Intermediation, 38, April 2019, p. 19-44. 10.1016/j.jfi.2018.05.004

Type
Article accepté pour publication ou publié
Date
2019
Journal name
Journal of Financial Intermediation
Volume
38
Number
April 2019
Publisher
Elsevier
Pages
19-44
Publication identifier
Metadata
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Author(s)
Benoit, Sylvain
Laboratoire d'Economie de Dauphine [LEDa]
Hurlin, Christophe
Laboratoire d'Économie d'Orleans [UMR7322] [LEO]
Pérignon, Christophe
Groupement de Recherche et d'Etudes en Gestion à HEC [GREGH]
Abstract (EN)
In this paper, we identify several shortcomings in the systemic-risk scoring methodology currently used to identify and regulate Systemically Important Financial Institutions (SIFIs). Using newly-disclosed regulatory data for 119 US and international banks, we show that the current scoring methodology severely distorts the allocation of regulatory capital among banks. We then propose and implement a methodology that corrects for these shortcomings and increases incentives for banks to reduce their risk contributions.
Subjects / Keywords
Banking; Macroprudential regulation; Systemically Important Financial Institutions; Financial crises; Financial risk and risk management
JEL
G01 - Financial Crises
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill