On the ranking consistency of global systemic risk measures: empirical evidence, by Michael Abendschein and Peter Grundke
We empirically analyze to which extent popular global systemic risk measure (SRMs) yield comparable results with respect to the systemic importance of a financial institution and, in particular, from which determinants the degree of consistency of the classification by the various SRMs depends. In this study, we investigate the rank correlations of SRMs in order to detect common drivers that might explain (in-)consistent ranking outcomes. Our results show that rank correlations are higher for larger banks and lower for periods of stronger stock market performance. Bank's balance sheet size is a particularly strong driver of rank correlations when financial markets exhibit low volatility while rank correlations are mostly unaffected by any bank-specific or macroeconomic characteristics during periods of high volatility. Further analyses reveal the inconsistency of systemic risk ranks and the difficulty to detect specific explanatory factors across different settings. Given the numerous applications of SRMs within academic studies, these results appeal for a careful interpretation of their informative value.
Keywords: systemic risk, risk rankings, financial regulation
JEL classifications: G01, G21, G28, G32