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Can we prove a bank guilty of creating systemic risk? A minority report

Danielsson, Jon, James, Kevin R., Valenzuela, Marcela and Zer, Ilknur (2016) Can we prove a bank guilty of creating systemic risk? A minority report. Journal of Money, Credit and Banking, 48 (4). pp. 795-812. ISSN 0022-2879

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Identification Number: 10.1111/jmcb.12318


Because increasing a bank's capital requirement to improve the stability of the financial system imposes costs upon the bank, a regulator should ideally be able to prove beyond a reasonable doubt that banks classified as systemically risky really do create systemic risk before subjecting them to this capital punishment. Evaluating the performance of two leading systemic risk models, we show that estimation error alone prevents the reliable identification of the most systemically risky banks. We conclude that it will be a considerable challenge to develop a riskometer that is sound and reliable enough to provide an adequate foundation for macroprudential policy.

Item Type: Article
Official URL:
Additional Information: © 2016 The Ohio State University
Divisions: Finance
Systemic Risk Centre
Financial Markets Group
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HJ Public Finance
Sets: Departments > Finance
Research centres and groups > Systemic Risk Centre
Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 31 May 2016 12:05
Last Modified: 20 Oct 2020 05:02
Projects: ES/K002309/1, 11140541, MIPP IS130002
Funders: Economic and Social Research Council, AXA Research Fund, Fondecyt Project, Instituto Milenio

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