Are Market-Based Measures of Global Systemic Importance of Financial Institutions Useful to Regulators and Supervisors?

Zhang, Q.; Vallascas, F.; Keasey, K.; Cai, C.X.

doi:10.1111/jmcb.12249

Are Market-Based Measures of Global Systemic Importance of Financial Institutions Useful to Regulators and Supervisors?

Zhang, Q.; Vallascas, F.; Keasey, K.; Cai, C.X.

Authors

Q. Zhang

Professor Francesco Vallascas francesco.vallascas@durham.ac.uk
Professor

K. Keasey

C.X. Cai

Abstract

We analyze whether four market-based measures of the global systemic importance of financial institutions offer early warning signals during three financial crises. The tests based on the 2007–2008 crisis show that only one measure (∆CoVaR) consistently adds predictive power to conventional early warning models. However, the additional predictive power remains small and it is not normally confirmed for the Asian and the 1998 crises. We conclude that it is problematic to identify a market-based measure of systemic importance that remains valid across crises with different features. The same criticism also applies to several conventional proxies of systemic importance, of which size is the most consistent performer.

Citation

Zhang, Q., Vallascas, F., Keasey, K., & Cai, C. (2015). Are Market-Based Measures of Global Systemic Importance of Financial Institutions Useful to Regulators and Supervisors?. Journal of Money, Credit and Banking, 47(7), 1403-1442. https://doi.org/10.1111/jmcb.12249

Journal Article Type	Article
Acceptance Date	Oct 7, 2014
Online Publication Date	Sep 29, 2015
Publication Date	Oct 1, 2015
Deposit Date	Dec 3, 2015
Publicly Available Date	Sep 29, 2017
Journal	Journal of Money, Credit and Banking
Print ISSN	0022-2879
Electronic ISSN	1538-4616
Publisher	Wiley
Peer Reviewed	Peer Reviewed
Volume	47
Issue	7
Pages	1403-1442
DOI	https://doi.org/10.1111/jmcb.12249
Keywords	G28, Market measures of systemic importance, Financial crises, Regulation.
Public URL	https://durham-repository.worktribe.com/output/1425331

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Copyright Statement
This is the accepted version of the following article: Zhang, Q., Vallascas, F., Keasey, K. and Cai, C. X. (2015), Are Market-Based Measures of Global Systemic Importance of Financial Institutions Useful to Regulators and Supervisors?. Journal of Money, Credit and Banking, 47(7): 1403-1442, which has been published in final form at https://doi.org/10.1111/jmcb.12249. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.