SRISK: A conditional capital shortfall measure of systemic risk

Recognition Program

Authors: Christian Brownlees and Robert F. Engle

Review of Financial Studies, Vol. 30, No 1, 48-79, March, 2017

We introduce SRISK to measure the systemic risk contribution of a financial firm. SRISK measures the capital shortfall of a firm conditional on a severe market decline, and is a function of its size, leverage and risk.We use the measure to study top financial institutions in the recent financial crisis. SRISK delivers useful rankings of systemic institutions at various stages of the crisis and identifies Fannie Mae, Freddie Mac, Morgan Stanley, Bear Stearns, and Lehman Brothers as top contributors as early as 2005-Q1. Moreover, aggregate SRISK provides early warning signals of distress in indicators of real activity.

This paper is acknowledged by the Barcelona GSE Research Recognition Program