Systemic Risk Contributions: A credit portfolio approach

by Natalia Puzanova of Deutsche Bundesbank, and
Klaus Düllmann of Deutsche Bundesbank

May 21, 2012

Abstract: We put forward a framework for measuring systemic risk and attributing it to individual banks. Systemic risk is coherently measured as the expected loss to depositors and investors when a systemic event occurs. The risk contributions are calculated based on derivatives of the systemic risk measure, thus, ensuring a full risk allocation among institutions. Applying our methodology to a panel of 54 to 86 of the world's major commercial banks for a 13-year time span with monthly frequency, we are not only able to closely match the list of G-SIBs. We also can use individual risk contributions to compute bank-specific capital surcharges: systemic capital charges as well as countercyclical buffers. We therefore address both dimensions of systemic risk - cross-sectional and time-series - in a single, integrated approach. As the analysis of risk drivers confirms, the main focus of macroprudential supervision should be on a solid capital base throughout the cycle and de-correlation of banks' asset values.

JEL Classification: G21, G28, C15, C63.

Keywords: Systemic Risk, Systemic Risk Contributions, Systemic Capital Charge, Expected Shortfall, Importance Sampling.

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