tailieunhanh - SAFE: An Early Warning System for Systemic Banking Risk

The objective of this study is to develop an early‐warning system (EWS) for identifying systemic banking risk, which will give policymakers and supervisors time to prevent or mitigate a potential financial crisis. It is important to forecast—and perhaps to alleviate—the pressures that lead to systemic crises, which are economically and socially costly and which require significant time to reverse (Honohan et al., 2003). The current . supervisory policy toolkit includes several EWSs for flagging distress in individual institutions, but it lacks a tool for identifying systemic-level banking Gramlich, Miller, Oet, and Ong (2010) review the theoretical foundations of EWSs for systemic banking risk and classify the explanatory. | r o r k i n g paper 11 SAFE An Early Warning System for Systemic Banking Risk Mikhail V. Oet Ryan Eiben Timothy Bianco Dieter Gramlich Stephen J. Ong and Jing Wang FEDERAL RESERVE BANK OF CLEVELAND Working papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. Working papers are available on the Cleveland Fed s website at research. Working Paper 11-29 November 2011 SAFE An Early Warning System for Systemic Banking Risk Mikhail V. Oet Ryan Eiben Timothy Bianco Dieter Gramlich Stephen J. Ong and Jing Wang This paper builds on existing microprudential and macroprudential early warning systems EWSs to develop a new hybrid class of models for systemic risk incorporating the structural characteristics of the financial system and a feedback amplification mechanism. The models explain financial stress using both public and proprietary supervisory data from systemically important institutions regressing institutional imbalances using an optimal lag method. The Systemic Assessment of Financial Environment SAFE EWS monitors microprudential information from the largest bank holding companies to anticipate the buildup of macroeconomic stresses in the financial markets. To mitigate inherent uncertainty SAFE develops a set of medium-term forecasting specifications that gives policymakers enough time to take ex-ante policy action and a set of short-term forecasting specifications for verification and adjustment of supervisory actions. This paper highlights the application of these models to stress testing scenario analysis and policy. Keywords Systemic risk .