Skip to main content
Disciplines
Automotive Business IT + Informatics Construction + Real Estate Electrical Engineering + Electronics Energy + Sustainability Insurance + Risk Finance + Banking Management + Leadership Marketing + Sales Mechanical Engineering + Materials
Events
DE
EN
Books
Journals
Topic Page
Marketing
Start single access now
Access for companies
EXTENDED SEARCH
Log in
Top
Annals of Finance
Published in: Annals of Finance 4/2018

06-06-2018 | Research Article

Analysis of the SRISK measure and its application to the Canadian banking and insurance industries

Authors: Thomas F. Coleman, Alex LaPlante, Alexey Rubtsov

Published in: Annals of Finance | Issue 4/2018

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

In this paper, we analyse, modify, and apply one of the most widely used measures of systemic risk, SRISK, developed by Brownlees and Engle (in Rev Financ Stud 30:48–79, 2016). The measure is defined as the expected capital shortfall of a firm conditional on a prolonged market decline. We argue that segregated funds, also known as separate accounts in the US, should be excluded from actuarial liabilities when SRISK is calculated for insurance companies. We also demonstrate the importance of careful analysis of accounting standards when specifying the prudential capital ratio used in SRISK methodology. Based on the proposed adjustments to SRISK, we assess the systemic risk of the Canadian banking and insurance industries. It is shown that in its current implementation, the SRISK methodology substantially overestimates the systemic risk of Canadian insurance companies.
previous article On relative performance, remuneration and risk taking of asset managers
next article Correction to: Analysis of the SRISK measure and its application to the Canadian banking and insurance industries

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

inform now
Appendix
Available only for authorised users
Footnotes
2
On December 18, 2014, one the largest US insurance companies, MetLife, was notified by the Financial Stability Oversight Council (FSOC) that it had been designated a non-bank SIFI. MetLife challenged that decision in federal court and on March 30, 2016 U.S. District Court Judge Rosemary Collyer ruled in MetLife’s favor and rescinded FSOC’s designation of the company as a SIFI. The Department of Justice on behalf of FSOC has appealed that decision and the case is now under consideration with the U.S. Court of Appeals for the DC Circuit. See https://​www.​metlife.​com/​sifiupdate/​index.​html.
 
3
Please note that there is some controversy surrounding the strength of the Canadian banking system during the crisis (see the discussion in Sect. 5 and references therein).
 
4
The term “quasi-market value” of assets is to reflect the fact that we use the book value of debt (not its market value) together with market value of equity.
 
5
The graphs for Royal Bank of Canada (RBC), Bank of Montreal (BMO), and Scotiabank provide similar estimates.
 
7
We would like to emphasize that this analysis ignores the differences in other non-derivative balance sheet categories that result in accounting standard differences.
 
8
The book values of Debt used in the historical capital ratio calculation were adjusted for the segregated fund (see section ‘Segregated Fund Adjustment’).
 
9
It is also the case that the dynamics of SRISK can change after the adjustment. It can be shown that over the last decade there is an obvious upward trend of total SRISK for the US insurance companies under consideration, whereas there is no observable trend in SRISKa.
 
10
Canada Bank Bailout: Yes, There Was One, And Here’s Why It’s Important To Remember That. The Huffington Post, May 1, 2012.
Don’t Call it a Bailout. It Wasn’t. The Huffington Post, May 1, 2012.
 
11
U.S. financial crisis hits CIBC. Toronto Star, March 17, 2008.
TD bank reports $350 M in credit losses. Toronto Star, November 29, 2008.
 
Literature
Acharya, V., Richardson, M.: Is the insurance industry systemically risky? In: Biggs, J.H., Richardson, M. (eds.) Modernizing Insurance Regulation, pp. 151–180. Wiley, Hoboken (2014)CrossRef
Acharya, V., Engle, R., Richardson, M.: Capital shortfall: a new approach to ranking and regulating systemic risks. Am Econ Rev 102(3), 59–64 (2012)CrossRef
Acharya, V., Pedersen, L., Philippon, T., Richardson, M.: Measuring systemic risk. Rev Financ Stud 30(1), 2–47 (2017)CrossRef
Adrian, T., Brunnermeier, M.: CoVaR. Am Econ Rev 106(7), 1705–1741 (2016)CrossRef
Allen, L., Bali, T.G., Tang, Y.: Does systemic risk in the financial sector predict future economic downturns? Rev Financ Stud 25, 3000–3036 (2012)CrossRef
Biggs, J., Richardson, M.: Modernizing Insurance Regulation. Wiley Finance Series. Wiley, Hoboken (2014)CrossRef
Brownlees, C., Engle, R.: SRISK: a conditional capital shortfall measure of systemic risk. Rev Financ Stud 30, 48–79 (2016)CrossRef
Brunnermeier, M., Cheredito, P. (2014): Measuring and allocating systemic risk. Working paper (2014)
Canada: 2009 Article IV Consultation—Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion. IMF Country Report No. 09/162
Cummins, D., Weiss, M. (2013): Systemic risk and regulation of the US Insurance Industry. Working paper (2013)
Danielsson, J., James, K.R., Valenzuela, M., Zer, I.: Can We prove a bank guilty of creating systemic risk? A minority report. J Money Credit Bank 48(4), 795–812 (2016)CrossRef
Engle, R.: Dynamic conditional correlation: a simple class of multivariate generalized autoregressive conditional heteroskedasticity models. J Bus Econ Stat 20, 339–350 (2002)CrossRef
Engle, R.: Anticipating Correlations: A New Paradigm for Risk Management. Princeton University Press, Princeton (2009)
Engle, R., Jondeau, E., Rockinger, M.: Systemic risk in Europe. Rev Finance 19, 145–190 (2015)CrossRef
Glosten, L., Jagananthan, R., Runkle, D.: On the relation between the expected value and the volatility of the nominal excess return on stocks. J Finance 48, 1779–1801 (1993)CrossRef
Harrington, S.: The financial crisis, systematic risk, and the future of insurance regulation. J Risk Insur 76, 785–819 (2009)CrossRef
Harrington, S. (2010): Insurance regulation and the Dodd-Frank Act. Working paper (2010)
Huang, X., Zhou, H., Zhu, H.: Systemic risk contributions. J Financ Serv Res 42, 55–83 (2011)CrossRef
Iyengar, G., Luo, Y., Rajgopal, S., Venkatasubramanian, V., Zhang, A. (2017): Towards a financial statement based approach to modelling systemic risk in insurance and banking. Working paper (2017)
Lee, J., Ryu, J., Tsomocos, D.: Measures of systemic risk and financial fragility in Korea. Ann Finance 9(4), 757–786 (2013)CrossRef
Morales, M., Estrada, D.: A financial stability index for Colombia. Ann Finance 6(4), 555–581 (2010)CrossRef
Scott, H., Ricci, K., Sarfatti, A. (2016): SRISK as a measure of systemic risk for insurers: oversimplified and inappropriate. Working paper (2016)
Tabak, B., Cajueiro, D., Fazio, D.: Financial fragility in a general equilibrium model: the Brazilian case. Ann Finance 9(3), 519–541 (2013)CrossRef
Metadata
Title
Analysis of the SRISK measure and its application to the Canadian banking and insurance industries
Authors
Thomas F. Coleman
Alex LaPlante
Alexey Rubtsov
Publication date
06-06-2018
Publisher
Springer Berlin Heidelberg
Published in
Annals of Finance / Issue 4/2018
Print ISSN: 1614-2446
Electronic ISSN: 1614-2454
DOI
https://doi.org/10.1007/s10436-018-0326-3

Other articles of this Issue 4/2018

Annals of Finance 4/2018 Go to the issue

Research Article

Debt financing in private and public firms

Research Article

On relative performance, remuneration and risk taking of asset managers

Research Article

Option pricing under fast-varying and rough stochastic volatility

Correction

Correction to: Analysis of the SRISK measure and its application to the Canadian banking and insurance industries

Research Article

Inconspicuousness and obfuscation: how large shareholders dynamically manipulate output and information for trading purposes