This paper defines asymptotic marginal expected shortfall (AMES) for banks within a financial system and provides corresponding estimation method based on multivariate extreme value theory. The AMES is similar to the Marginal Expected Shortfall (MES) but focusing on extreme losses only. In contrast to previous studies on MES, the estimation method does not assume a specific dependence structure among bank equity returns and is applicable to both large and small systems. Both theoretical AMES and our estimator inherit the additive property and thus can serve as a tool to allocate systemic risk. We apply the AMES to 29 global systemically important financial institutions (G-SIFIs) to evaluate the systemic risk allocation. We show that allocating systemic risk according to simple bank characteristics such as size and individual risk can be imperfect and unfair. The allocation fairness with respect to individual risk or size across all the G-SIFIs has decreased since 2008.

Marginal expected shortfall, systemically important financial institutions, extreme value theory
Banks; Other Depository Institutions; Mortgages (jel G21), Semiparametric and Nonparametric Methods (jel C14), Financing Policy; Capital and Ownership Structure (jel G32)
hdl.handle.net/1765/135231
Journal of Banking & Finance
Erasmus School of Economics

Qin, X., & Zhou, C. (2021). Systemic risk allocation using the asymptotic marginal expected shortfall. Journal of Banking & Finance, accepted. Retrieved from http://hdl.handle.net/1765/135231