Measures of systemic risk and financial fragility in Korea

Measures of systemic risk and financial fragility in Korea
Document type
Paper
Author(s)
Lee, Jong Han; Ryu, Jaemin; Tsocomos, Dimitrios P
Publisher
Said Business School, Oxford University
Date of publication
1 September 2012
Series
Saïd Business School Working Paper Series 2012-19
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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This paper provides a quantitative metric for the financial stability of the Korean banking system based on the Tsomocos model, for which we use market data as proxies for the probabilities of default and the equity valuation of the banking sector. We estimate the effect of the probability of default and the equity valuation of the banking sector on real output in order to measure the financial fragility using a vector error correction model (VECM). In addition, we estimate the contributions of individual banks to systemic risk using CoVaR and MES (Marginal Expected Shortfall). CoVaR is estimated based on the methodology of Adrian and Brunnermeier, and MES is estimated based on the Shapley value methodology Tarashev, Borio and Tsatsaronis.

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