Abstract
The recent global financial crisis has taught us one tough and important lesson that, there is a pressing need for containing the systemic risk in the financial system. However, prior to containing this risk and form the regulations we need to measure this risk properly. This research has attempted to measure systemic risk in financial system and its evolution over time on daily basis. Being severely hit by the financial crisis in 2008-09, the US financial system provides the perfect setting for studying the evolution of systemic risk. We used the data of big US financial firms from year 2001 and onwards till the end of year 2011 for this study. We found the indications of continuous increase in the systemic risk levels of the US system before the Lehman Brothers’ failure but probably this ex-ante risk was neither measured nor taken very seriously by the regulators. Systemic risk was at peak during the crisis though the level of the peak was different for the different kind of institutions. Depositories and Broker-dealer firms seem to pollute more and though the level of risk came down after the crisis but still high towards the end of 2011. This seems to be a first study estimating the time series of Systemic Expected Shortfall on daily basis and also the first in estimating firm specific share in the total systemic risk contribution of the firm.
Published Version
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