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Jon Danielsson, London School of Economics Print
Wednesday, 21 March 2012, 08:00 - 17:00

Jon Danielsson, London School of Economics


Systemic Risk: Models and Policy

In his talk he will combine 2 papers:

Model Risk of Systemic Risk Models

Abstract: Statistical systemic risk measures (SRMs) have been proposed by several authors. Those generally depend on established methods from market risk forecasting. The two most common SRMs, MES and CoVaR, along with VaR, are compared theoretically and then critically empirically analyzed. They are found to contain a high degree of model risk so that the signal they produce is highly unreliable. Finally, the papers discusses the main problems in systemic risk forecasting and proposed evaluation criteria fur such models.

Dealing with Systemic Risk when weMeasure it Badly

Abstract: While an omniscient regulator would base a bank's capital requirement upon its contribution to systemic risk, we show that a regulator who measures a bank's contribution to systemic risk badly will find it optimal to use a simple leverage ratio instead. We empirically analyze the performance of leading risk measurement methods and find that they are incapable of providing either precise estimates of an individual bank's contribution to systemic risk or reliable rankings of banks by the amount of systemic risk they create. We conclude that a leverage ratio dominates a policy of systemic risk based capital requirements.

Location: NBB Room A1, Warmoesberg, 61
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Please reply by email to if you wish to participate to this seminar. With name and car plate number to access the NBB Parking Warmoesberg 41.