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Weighting on Systemic Important Banking (SIB) in Indonesia: The Official Versus PCA Approaches

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  • Samsul Anwar

    (Department of Statistics, Universitas Syiah Kuala, Banda Aceh, Indonesia)

Abstract

In determining its Domestic Systemic Important Banking (D-SIB), Indonesia implemented the Global Systemic Important Banking (G-SIB) based on three of five indicators, those being size, interconnectedness, and complexity. Both the G-SIB and the Indonesian D-SIB use an equal weight for each indicator, that is, 1/5 and 1/3 respectively. However, the weight could be modified by using the eigenvector of the Principal Component Analysis (PCA). We showed that this new weighting system was better than the official weighting system (referred to in this paper as the POJK approach) based on the Financial Services Authority (OJK) regulation No.46/POJK.03/2015.

Suggested Citation

  • Samsul Anwar, 2020. "Weighting on Systemic Important Banking (SIB) in Indonesia: The Official Versus PCA Approaches," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(2), pages 155-182.
    • Handle: RePEc:cbk:journl:v:9:y:2020:i:2:p:155-182
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Eigenvectors; Indonesia; Principal Component Analysis; Systemic Important Banking; Weighting;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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