A theoretical framework for simulating systemic risk and its application to analysis of the banking system

Risk of basic defaults and contagious defaults are two main sources of bank systemic risk. In this paper, a theoretical framework is proposed to classify the time evolution of the basic defaults and contagious defaults using sequences of daily financial data. The new theoretical framework combines a...

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Autor principal:	Chirongo Moses Keregero
Formato:	article
Lenguaje:	EN
Publicado:	Taylor & Francis Group 2021
Materias:	systemic risk network analysis interbank market bank defaults ·financial stability Finance HG1-9999 Economic theory. Demography HB1-3840
Acceso en línea:	https://doaj.org/article/18b5db1a4f1743f884a6c511456a595d
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spelling	oai:doaj.org-article:18b5db1a4f1743f884a6c511456a595d2021-11-11T14:23:43ZA theoretical framework for simulating systemic risk and its application to analysis of the banking system2332-203910.1080/23322039.2021.1986930https://doaj.org/article/18b5db1a4f1743f884a6c511456a595d2021-01-01T00:00:00Zhttp://dx.doi.org/10.1080/23322039.2021.1986930https://doaj.org/toc/2332-2039Risk of basic defaults and contagious defaults are two main sources of bank systemic risk. In this paper, a theoretical framework is proposed to classify the time evolution of the basic defaults and contagious defaults using sequences of daily financial data. The new theoretical framework combines an existing asset value estimation algorithm and obligation clearing algorithm to calculate the time evolution of systemic risk. The asset value estimation algorithm is used to estimate the asset values of the banks each day and the obligation clearing algorithm is used to calculate systemic risk given the tuples of data each day. This framework is applied to assess the systemic risk of the Nigerian banking system between 2008 and 2014 when the economy was hit by the financial meltdown. The main findings depict that the risk of the basic defaults was high during this period while contagious default seldom appeared. It is also found that the Nigerian banking system was more stable in 2010 and 2012 than in other years, while it was seriously unstable in 2008, 2011, and 2014. The findings would assist in monitoring systemic risk in the Nigerian banking system.Chirongo Moses KeregeroTaylor & Francis Grouparticlesystemic risknetwork analysisinterbank marketbank defaults ·financial stabilityFinanceHG1-9999Economic theory. DemographyHB1-3840ENCogent Economics & Finance, Vol 9, Iss 1 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	systemic risk network analysis interbank market bank defaults ·financial stability Finance HG1-9999 Economic theory. Demography HB1-3840
spellingShingle	systemic risk network analysis interbank market bank defaults ·financial stability Finance HG1-9999 Economic theory. Demography HB1-3840 Chirongo Moses Keregero A theoretical framework for simulating systemic risk and its application to analysis of the banking system
description	Risk of basic defaults and contagious defaults are two main sources of bank systemic risk. In this paper, a theoretical framework is proposed to classify the time evolution of the basic defaults and contagious defaults using sequences of daily financial data. The new theoretical framework combines an existing asset value estimation algorithm and obligation clearing algorithm to calculate the time evolution of systemic risk. The asset value estimation algorithm is used to estimate the asset values of the banks each day and the obligation clearing algorithm is used to calculate systemic risk given the tuples of data each day. This framework is applied to assess the systemic risk of the Nigerian banking system between 2008 and 2014 when the economy was hit by the financial meltdown. The main findings depict that the risk of the basic defaults was high during this period while contagious default seldom appeared. It is also found that the Nigerian banking system was more stable in 2010 and 2012 than in other years, while it was seriously unstable in 2008, 2011, and 2014. The findings would assist in monitoring systemic risk in the Nigerian banking system.
format	article
author	Chirongo Moses Keregero
author_facet	Chirongo Moses Keregero
author_sort	Chirongo Moses Keregero
title	A theoretical framework for simulating systemic risk and its application to analysis of the banking system
title_short	A theoretical framework for simulating systemic risk and its application to analysis of the banking system
title_full	A theoretical framework for simulating systemic risk and its application to analysis of the banking system
title_fullStr	A theoretical framework for simulating systemic risk and its application to analysis of the banking system
title_full_unstemmed	A theoretical framework for simulating systemic risk and its application to analysis of the banking system
title_sort	theoretical framework for simulating systemic risk and its application to analysis of the banking system
publisher	Taylor & Francis Group
publishDate	2021
url	https://doaj.org/article/18b5db1a4f1743f884a6c511456a595d
work_keys_str_mv	AT chirongomoseskeregero atheoreticalframeworkforsimulatingsystemicriskanditsapplicationtoanalysisofthebankingsystem AT chirongomoseskeregero theoreticalframeworkforsimulatingsystemicriskanditsapplicationtoanalysisofthebankingsystem
_version_	1718438915653763072

A theoretical framework for simulating systemic risk and its application to analysis of the banking system

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