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Correlation between the 2014 EU-wide stress tests and the market-based measures of systemic risk

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  • Dissem, Sonia
  • Lobez, Frederic

Abstract

In this paper, we compare the results of the European Banking Authority (EBA) stress tests conducted in 2014 with the market-based measures of capital losses, which are the marginal expected shortfall (MES), the systemic risk measure (SRISK) and the delta conditional value at risk (ΔCoVaR). These measures allow us to estimate the expected capital shortfall in the case of a crisis. The empirical analysis is performed on a sub-sample of the banks included in the stress test exercise, because only 57 European banks, in 22 countries, are publicly traded. We find that the SRISK is the best predictor of systemic risk among the 3 systemic risk measures, since it is the most correlated with the stress test results. Furthermore, we focus on the realized outcomes (realized loss, realized return and realized volatility) and compare them with the 2014 EU stress test results.

Suggested Citation

  • Dissem, Sonia & Lobez, Frederic, 2020. "Correlation between the 2014 EU-wide stress tests and the market-based measures of systemic risk," Research in International Business and Finance, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:riibaf:v:51:y:2020:i:c:s0275531918300965
    DOI: 10.1016/j.ribaf.2018.08.001
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    Cited by:

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    2. Pliszka, Kamil, 2021. "System-wide and banks' internal stress tests: Regulatory requirements and literature review," Discussion Papers 19/2021, Deutsche Bundesbank.
    3. Merike Kukk & Alari Paulus & Nicolas Reigl, 2022. "Credit market concentration and systemic risk in Europe," Bank of Estonia Working Papers wp2022-4, Bank of Estonia, revised 24 Mar 2022.
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    5. Mikhail I. Stolbov & Maria A. Shchepeleva & Alexander M. Karminsky, 2021. "A global perspective on macroprudential policy interaction with systemic risk, real economic activity, and monetary intervention," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-25, December.
    6. Foglia, Matteo & Angelini, Eliana, 2020. "From me to you: Measuring connectedness between Eurozone financial institutions," Research in International Business and Finance, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Stress test; Systemic risk; Bank regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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