Systemic Risk Measures and Regulatory Challenges

Scott Ellis, Satish Sharma, Janusz Brzeszczyński*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This paper discusses different definitions of systemic risk and identifies the challenges, which regulators face in addressing this phenomenon. We conducted a systematic literature review of 4859 abstracts to categorize the various methodologies developed to measure systemic risk. In total, 60 systemic risk measures proposed post-2000 have been critically appraised to inform academics and regulators of their practical applications and model vulnerabilities. This review suggests that most of these methods focus on individual financial institutions rather than on system stability. Those methodologies directly reflect the current regulations, which aim to ensure individual institutions’ soundness. As macro-prudential regulation evolves, policy-makers face the issues of understanding contagion and how regulations should be implemented. This paper also discusses new systemic risk and regulatory challenges resulting from the current COVID-19 pandemic.
Original languageEnglish
Article number100960
JournalJournal of Financial Stability
Volume61
Early online date8 Dec 2021
DOIs
Publication statusE-pub ahead of print - 8 Dec 2021

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