An Evaluation and Management of the Systemic Risk of the Banking System -A Literature Review

Abstract

There is consensus among financial regulators that the recent global financial crisis has highlighted the need of addressing incomplete reforms, one of them being the contribution of financial risks in destabilizing the financial markets. One of the most important form of financial risks is the systemic risk that is imposed by the inter linkages and interdependencies in a financial system. The purpose of this paper is to review some of the updated research articles published on the evaluation and management of the systemic risk between 2005 and 2015 by using diverse systemic risk analytics. The paper highlights the main contributions of the authors to the research. The discussion on the literature is classified into two parts namely empirical and non-empirical studies. The results show that the cross section measures proposed down by Acharya et al (2010) and Adrian and Brunnermeir (2011) MES and CoVaR respectively have gained popularity in evaluating the systemic risk, however the proposed measures should be used with warning. Moreover, despite the fact that the interest in the topic of management of systemic risk has grown tremendously, but little research has been conducted in developing countries.

Keywords: Macroprudential policy, Systemic risk, Systemic financial institutions, financial regulation.