CoVaR Metrics And Systemic Risk Of Financial Institutions In China

After the outbreak of the US subprime mortgage crisis in 2007,it swiftly spread and swept the world,causing a severe blow to the financial markets and the real economy of various countries.The systemic risk of financial markets is so destructive that people begin to realize that regulation at the individual agency level does not reflect the level of risk at the system level.The micro-prudential supervision concept has begun to shift towards macro-prudential.Despite the changes in the regulatory concept,it is still impossible to avoid the current situation of systemic risk events.As far as the Chinese market is concerned,extreme financial events such as the “money shortage” in 2013 and the “share disaster” in 2015 have occurred.Therefore,how to effectively measure the systemic risk of China's financial institutions,identify China's systemically important financial institutions,and analyze the influencing factors of financial institutions' risk spillovers has certain theoretical and practical significance.The research content mainly includes: Firstly we adopt the CoVaR method of Adrian & Brunnermeier(2016)to measure the systemic risk of financial institutions in China.Taking into account the dynamic correlation between financial institutions and financial systems,we use the DCC-GARCH model of Engle(2002)to solve CoVaR.Then,based on this,11 proxy variables are selected from the macroeconomic level and micro-company characteristics.At the same time,dummy variables are set to represent the type of organization,and the influence of different factors on risk spillover is analyzed.Finally,in view of the "procyclical trap" of the CoVaR method,the forward-???is constructed according to the ideas of Adrian & Brunnermeier(2016),aiming to use the data from the same period to predict the future systemic risks of financial institutions.After empirical analysis,we finds:First,the standardized ???can better rank the systemic importance of China's listed financial institutions.Overall,Bank>Insurance>Securities>Trust,and commercial banks>shareholding commercial banks>city commercial banks.Second,in terms of micro-company characteristics,factors such as leverage level,scale,stock volatility,and beta value have significant effects on the risk spillover ability of financial institutions.The higher the leverage level,the greater the contribution of financial institutions to systemic risk,which indicates that the policy orientation of de-leveraging is effective in preventing systemic risks.Larger financial institutions have strong risk spillover capabilities,which is exactly what the financial supervision needs to pay attention to.The stock volatility and ? value are significantly negatively correlated with the systemic risk contribution,indicating that the risk volatility of financial institutions with large fluctuations under average risk status is not strong,and those more stable financial institutions such as state-owned commercial banks are the key points in financial supervision.The results of industry dummy variables also show that banks have significantly greater risk spillover capabilities than other types of financial institutions.Third,the results of the macroeconomic level show that when the economic situation is good,the risk spillover contribution of financial institutions is small,and after a gradual accumulation of risks,it will break out in the crisis.Therefore,directly using the CoVaR indicator as a financial supervision tool will underestimate the calm period and overestimate the risk level during the crisis,thereby increasing the adverse effects of adverse shocks(Adrian & Brunnermeier,2016).This paper selects bank-type financial institutions and uses 11 proxy variables at the macroeconomic and micro-company levels to model the lag of standardized ???of financial institutions and construct a forward-looking risk indicator forward-(1(6???????????.The results show that there is a significant negative correlation between forward-???and (1(6???????????.For example,before the outbreak of the financial crisis in 2008,the ???is small and the forward-???is relatively large,which better characterizes the risk accumulation phenomenon of calm period.Therefore,the macro-prudential risk supervision based on the forward-???indicator is counter-cyclical,which can predict and manage the systemic risk contribution of financial institutions.