Research On China's Listed Banks'systemic Importance

The financial crisis began in2007directly gave birth to Basel III, the agreement which stresses that systemically important banks should have higher risk absorption capacity than the regulatory standards require, and also have the need to impose more stringent control, as well as additional capital requirements, the specific ratio of each bank could be judged according to its systemic importance within the system. Meanwhile, the Basel Committee together with the Financial Stability Board are also studying integrated programs in accordance with the banks of systemic importance, such specific programs may include capital surcharges, contingent capital, bail-in debt and a series of other relevant measures. The definition of systemically important banks is key to the effective use of such measurements in the near future. It can also allow the efficient allocation of regulatory resources, making them inclined appropriately to systemically important banks.Systemic importance, mainly aims to study each financial institution's contribution to systemic risk. By firstly measuring the systemic risk throughout the entire financial system, then through the use of effective distribution method, the systemic risk is assigned to every single institution according to its contribution; so you can measure the systemic importance of the financial institution quantitatively. But in fact, as the systemic linkages between agencies exists, making the total sum of the systemic risk of every institution within the system does not equal to systemic risk of the whole, which makes the effective measuring of every institution's contribution to the systemic risk more complex, thus increasing the difficulty of macro-prudential supervision. As one of the measurement of the systemic importance, the method of Shapley value based on the theory of cooperative game, when applied into the distribution of systemic risk, the systemic risk could be distributed on the basis of different systemic importance of every institution within the system in a reasonable way, thus making the systemic risk assigned to every institution equal to the total sum, which in practice is proved to be an effective measurement of the systemic importance of financial institutions.In this paper, we use the method of Shapley value to study empirically of China's listed banks, by distributing the systemic risk into every single bank, then we could measure its systemic importance. The results show that the Industrial and Commercial Bank of China, the Bank of China are of more systemic importance. Although the Bank of Communications is of large scale, its Shapley value is relatively small, indicating that large-scale banks are not certainly of systemic importance. In addition, our paper also uses the method of Incremental VaR to measure systemic importance, and the result is quite consistent with that of the method of Shapley value. But as the approach of Incremental VaR ignores the relationship among banks, it underestimates the systemic importance of every bank. As size, the probability of default and the exposure to common (systemic) risk factors are the three key factors associated with systemic risk and could affect the systemic importance of banks. By analyzing the relationship between these three factors and the systemic importance of the banking system, we find out that those three factors alone can not measure the systemic importance of banks accurately, the method of Shapley value can measure the systemic importance of every bank within the system effectively.