Abstract: We propose a measure for systemic risk, ?CoVaR, defined as the difference between the conditional value at risk (CoVaR) of the financial system conditional on an institution being in distress and the CoVaR conditional on the median state of the institution. Our ?CoVaR estimates show that characteristics such as leverage, size, maturity mismatch, and asset price booms significantly predict systemic risk contribution. We provide out-of-sample forecasts of a countercyclical, forward-looking measure of systemic risk and show that the 2006:Q4 value of this measure would have predicted more than one-third of realized ?CoVaR during the financial crisis.

Keywords: value at risk; systemic risk; risk spillovers; financial architecture;

JEL Classification: G01; G10; G18; G20; G28; G32; G38;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2014-09-01

Number: 348