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Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2021 > (Research Paper) Too-big-to-fail Reforms and Systemic Risk
February 26, 2021
We examine the effects of too-big-to-fail reforms using Delta-CoVaR and SRISK. Developments in these market-based systemic risk measures suggest that the reforms have led to a larger decline in the systemic risk contribution of global systemically important banks (G-SIBs) than of other banks. The systemic risk measures also suggest that the larger the systemic risk associated with a G-SIB, the more the reforms have led to a decline in its systemic risk. These findings are consistent with the objectives of the reforms and are validated by statistical analyses, including quantile panel regressions. We also highlight the importance of using data for a subset of financial institutions to adjust for the increase in data coverage when using popular estimates of SRISK. Furthermore, SRISK may overestimate systemic risk in recent years by ignoring the role of total loss absorbing capacity (TLAC)-eligible bonds.
Too Big to Fail, Systemic Risk, Financial Regulations, CoVaR, SRISK
G21, G23, G28
The authors thank staff members of the Bank of Japan and members of the Financial Stability Board's evaluation working group on the effects of too-big-to-fail reforms, in particular Claudia Buch, Simon Firestone, and Nellie Liang, for their valuable comments. We are also grateful to Naohisa Hirakata and his coauthors for sharing the code to compute Delta-CoVaR. All remaining errors are our own. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.
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