Monitoring systemic risk:
facing the data constraints
Laurent CLERC
Banque de France
Financial Stability Directorate
Isaac NEWTON Institute
Cambridge
25 September 2014
An amazing amount of research on systemic risk measures…
but mostly based on market price data
• Financial Indicators on Risk and Stability (FIRST), by Avesani (2005)
• Expected number of defaults (END), by Chan-Lau and Gravelle (2005)
• Conditional Value-at-Risk (CoVaR), by Adrian and Brunnermeier (2008)
• Conditional probability of failure of a large fraction of financial institutions, by Giesecke and Kim (2009)
• Banking Stability Measures (in particular BSI and JPoD), by Segoviano and Goodhart (2009)
• Distress insurance premium (DIP) of the banking system and an institution’s marginal contribution to it, by Huang et al. (2009)
and Huang et al. (2010)
• Marginal expected shortfall (MES), by Acharya et al. (2010) and disentangled into volatility, correlation and tail risk by
Brownlees and Engle (2010)
• Measure institutions’ systemic importance using Shapley value methodology, by Tarashev et al. (2010) and Drehmann and
Tsatsaronis (2011)
• Information contained in central bank communication to help measure stress in financial markets (specific focus on the euro
area), by Grimaldi (2010)
• Composite Indicator of Systemic Stress (CISS) (specific focus on the euro area), by Hollo et al. (2010)
• Systemic risk diagnostics (simultaneous failure of a large number of bank and non-bank intermediaries), by Schwaab et al.
(2010)
• Bank Vulnerability (AV), by Greenwood et al. (2011)
• Contigent Claim Analysis (CCA), by Gray and Jobst (2011)
• Non-Core liabilities ratio (Hahm et al., 2011)
• Contagion Index, Cont et al. (2012)
• Granger causality on principal components, by Billio et al. (2012)
• A Survey of Systemic Risk Analytics (31 measures), by Bisias et al. (2012)
•SRISK (Brownlees and Engle, 2011 ; Acharya et al. AER, 2012)
• Multi-CoVaR and Shapley value, by Cao (2013)
• Domino Effects when Banks Hoard Liquidity, Fourel et al. (2013)
• A Network View on Money Market Freezes, Abassi et al. (2013)
• Evaluating Early-Warning indicators of banking crises, Drehmann and Juselius (2013)
• Macro-financial vulnerabilities and future financial stress, Lo Duca and Peltonen (2013)
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Market price and exposures data: Does it
make any difference?
Table 10: Correlations between market-price and exposure-based measures
(06 Jan 2012)
Contr-CoVaR
Exp-CoVaR
Contr-CoCDS
Exp-CoCDS
CDS-val
MES-val
Rel.
Cap.shortfall
Market-val
(08 Jan 2010)
Contr-CoVaR
Exp-CoVaR
Contr-CoCDS
Exp-CoCDS
CDS-val
MES-val
Rel.
Cap.shortfall
Market-val
Eigenvector
0.542
0.031
0.043
-0.184
-0.237
0.138
0.639
Betweenness
0.545
-0.069
-0.277
-0.247
-0.312
-0.089
0.583
Exposure
0.688
0.106
0.048
-0.214
-0.204
0.251
0.712
Indegree
0.635
-0.013
-0.300
-0.305
-0.330
-0.013
0.643
0.107
Eigenvector
0.118
0.174
0.012
-0.060
-0.233
0.130
0.579
0.266
Betweenness
-0.086
-0.088
-0.412
-0.344
-0.220
0.070
0.216
0.202
Exposure
0.105
0.093
-0.138
-0.200
-0.269
0.076
0.704
0.220
Indegree
0.016
0.030
-0.294
-0.243
-0.266
0.086
0.623
0.245
0.273
0.371
0.369
Source: Clerc, Gabrieli, Kern & el Omari (2014): Monitoring the European CDS Market through Networks:
Implications for Contagion Risks, Banque de France Working Paper, n° 477, March.
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Regulatory efforts to overcome the data
issue and better monitor systemic risk
Before the crisis: data driven process
Available data
set (public data)
Research
Policy
Since 2009: policy driven process: e.g. the G20 Data
Gap initiative
Policy
Data
gaps
? Research
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The data Gap initiative
• Development of measures of system-wide, macroprudential risk
• Development of a common data template for GSIFIs
• Enhancement of BIS consolidated banking statistics
• Development of a standardized template covering
the international exposure of large non bank
financial institutions
• 10 countries participating in the Hub (located at the
BIS)
• The access of Central banks to the Hub is recent
(10 days ago): 10 members ; BIS provide reports
5
ODRF guidelines for authorities access to
TR data
6
ODRF guidelines for authorities access to
TR data
7
ODRF guidelines for authorities access to
TR data
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Current challenges: is the information
sufficient for systemic risk monitoring?
• Multilateral surveillance vs. nationally oriented
supervision
• No supervisory authority has the global picture
• But efforts to develop resolution regimes for GSIFIs
• Limited information: so far, no information on
collateral (the collection of information has just
started this year); difficult also to get consistent
exposures across various classes of derivatives
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New Challenges: the Data Tsunami
• Post Crisis regulatory environment
• Ex. EMIR in Europe
o
o
o
o
6 Trade repositories registered by the ESMA
Billions of daily observations
Still limited information on collateral
Issue of the consistency of the information gathered by the TR,
the extent to which data can be aggregated…
o Cost of storage: ex. DTCC invested USD100 millions to develop
its information system
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