Essays on Systemic Risk: An analysis from multiple perspectives

This thesis is about systemic risk in the financial sector. It considers several aspects of systemic risk. It is a building block for an analysis of the impact of systemic risk on the real economy.

It appears that stocks in the financial industry show a strong interdependence compared to stocks in other industries. This applies to both European and US equities. The strong interdependence suggests a major systemic risk for financials. At the same time, it is generally accepted that regulators will implicitly or explicitly step in to prevent a systemic crisis in the financial industry. Markets anticipate this warranty by accepting a lower return on financial stocks.

A large outstanding share capital, a large balance sheet size, bank loans (until mid-2008) and government bonds (after mid-2008), a large public debt and a low prosperity are empirical determinants of enjoyed government guarantees in Europe. The theoretical model suggests that in particular a limitation on the leverage ratio is an effective measure.

For a tax on their contribution to systemic risk, systemic risk can be assigned to banks in many ways. Two specific risk measures in the literature are fair in the sense that they meet the distributional requirements of Nobel laureate Lloyd Shapley. Two better-known risk measures, however, do not appear to meet these requirements.

To determine the likelihood of a systemic crisis, the tail probabilities, existing methods appear to make sizable errors. This thesis presents an improved method for calculating and simulating systemic risk using the multivariate normal distribution.