Bank Holdings and Systemic Risk

RePEc Short ID: pbr67
ORCID iD: 0000-0001-8184-2610

Brunetti, Celso; Harris, Jeffrey H.; Mankad, Shawn

doi:10.17016/FEDS.2018.063

Working Paper

Bank Holdings and Systemic Risk

Abstract: The recent financial crisis has focused attention on identifying and measuring systemic risk. In this paper, we propose a novel approach to estimate the portfolio composition of banks as function of daily interbank trades and stock returns. While banks? assets are reported to regulators and/or the public at relatively low frequencies (e.g. quarterly or annually), our approach estimates bank asset holdings at higher frequencies which allows us to derive precise estimates of (i) portfolio concentration within each bank?a measure of diversification?and (ii) common holdings across banks?a measure of market susceptibility to propagating shocks. We find evidence that systemic risk measures derived from our approach lead, in a forecasting sense, several commonly used systemic risk indicators.

Keywords: Systemic risk; Concentration index; Bank holdings; Similarity index;

JEL Classification: G21; C11; G11;

https://doi.org/10.17016/FEDS.2018.063