Measurement of Systemic Risk in the Colombian Banking Sector

Orlando Rivera-Escobar,Diego Fernando Manotas,John Willmer Escobar

doi:10.3390/risks10010022

Abstract

This paper uses three methodologies for measuring the existence of systemic risk in the Colombian banking system. The determination of its existence is based on implementing three systemic risk measures widely referenced in academic works after the subprime crisis, known as CoVaR, MES and SRISK. Together, the three methodologies were implemented for the case of Colombian Banks during the 2008–2017 period. The findings allow us to establish that the Colombian banking sector did not present a systemic risk scenario, despite having suffered economic losses due to external shocks, mainly due to the subprime crisis. The results and findings show the efficiency of the systemic risk measures implemented in this study as an alternative to measure systemic risk in banking systems.

Highlights

The following provides a summary of the basic inputs for constructing the systemic risk measures CoVaR and MES
This paper proposes a methodology for measuring systemic risk in the banking system
The methodology estimates three systemic risk measures widely referenced in academic papers after the subprime crisis, known as DCoVaR, MES and SRISK systemic risk index

Summary

Introduction

Risks 10: After the financial crisis of 2007–2008, the debate on the systemic risk that materialized took center stage This circumstance led both the financial regulatory institutions and the academy to take part in the different debates generated to know, in a better way, the circumstances and facts that would have provided the necessary inputs for the realization and materialization of this type of risk. The results of this crisis produced severe consequences and high costs for the economy and society. The above results made systemic risk one of the central research topics, generating many contributions encouraged by providing answers to the questions generated during and after the subprime crisis

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Conclusion