Unité mixte de recherche 7235

Systemic risk and individual risk: A trade-off?

Tatiana Gaelle Yongoua Tchikanda

The global financial crisis raised concerns about the European financial system structure. The systemic nature of financial institutions, especially banking institutions, was highlighted, questioning the bottom-up approach used so far to ensure the financial stability as a whole. In this study, we legitimize the calibration of micro-prudential instruments for macro-prudential purposes in order to measure and manage systemic risk. The debate on the best way to eliminate the negative externalities of systemic risk is politically controversial and economically complicated. Using bank balance sheet and daily stock market data from listed banks classified as Monetary Financial Institutions (MFIs) across EU-17 over the period 1999-2013, we investigate whether more individual bank soundness is conducive for financial stability. Through a 2SLS model to correct the observed endogeneity between the individual risk, measured by Z-score (Roy, 1952) and the systemic risk, measured by SRISK (Acharya, Engle and Richardson, 2012), our strong empirical results suggest that riskier banks contribute more to systemic risk. Thus, individual bank soundness increases the banking system resilience to potential shocks. On the one hand, this finding seems to challenge the traditional bottom-up approach. Indeed, our outcome emphasizes the fallacy of composition prior the crisis. Nevertheless, it shows that even if the sum of the risks borne by financial institutions does not reflect the global risks borne by the entire system, it is an important addition. On the other hand, this result justifies the calibration of micro-prudential tools for macro-prudential purposes; taking into account individual factors that are sources of systemic fragilities and a part of individual risk-taking. This study has important policy implications for designing and implementing new regulations to improve the financial system stability, in particular for MFIs because systemic risk remains misunderstood and its measuring tools are still ongoing (Hansen, 2012).

AGENDA

jeudi 28 septembre 2023

Lunch

Philippe POINSOT

Quels sont les gagnants et les perdants des réformes de la fiscalité locale en France ? Une évaluation de la suppression de la CVAE

jeudi 28 septembre 2023

Développement Durable Environnement et Energie (DDEE)

Romain Espinosa (CIRED)

Salle 614B de 11h – 12h

The Animal Welfare Levy

jeudi 5 octobre 2023

Groupe de travail Economie Comportementale

Aurélie Bonein (Université de Rennes 1, CREM)

TBA

jeudi 5 octobre 2023

Doctorants

Himani Pasricha

The impact of climate variability on internal migration in Thailand.

dimanche 8 octobre 2023

Professeurs invités

Fayçal Hamdi

dimanche 8 octobre 2023

Professeurs invités

Tobias Kretschmmer

lundi 9 octobre 2023

Professeurs invités

Alain Guay

lundi 9 octobre 2023

Law, Institutions and Economics in Nanterre (LIEN)

Tobias Krestchmer (LMU, Munich)

TBA

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