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Abstract
This paper measures individual bank’s impact on banking systemic risk and examines the effect of individual bank’s capital buffer and leverage to bank’s systemic risk impact in Indonesia during 2010-2014. Using Merton’s distance-to-default to measure systemic risk, the study shows a significant negative relationship between bank’s capital buffer and systemic risk. High capital buffer tends to lowering bank’s impact on systemic risk. Bank’s leverage level also influences its contribution to systemic risk, even though the impact is much lower compared to that of capital buffer impact.
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References
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- Afik, Z., Arad, O., & Galil, K. (2016). Using Merton model for default prediction: An empirical assessment of selected alternatives. Journal of Empirical Finance, 35, 43–67. https://doi.org/10.1016/j.jempfin.2015.09.004
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- Anginer, D., Demirguc-Kunt, A., & Zhu, M. (2014). How does competition affect bank systemic risk? Journal of Financial Intermediation, 23(1), 1–26. https://doi.org/10.1016/j.jfi.2013.11.001
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References
Acemoglu, D., Ozdaglar, A., & Tahbaz-Salehi, A. (2015). Systemic risk and stability in financial networks. American Economic Review, 105(2), 564--608. https://doi.org/10.1257/aer.20130456
Adrian, T., & Brunnermeier, M. K. (2016). CoVaR. American Economic Review, 106(7), 1705–1744. https://doi.org/10.1257/aer.20120555
Afik, Z., Arad, O., & Galil, K. (2016). Using Merton model for default prediction: An empirical assessment of selected alternatives. Journal of Empirical Finance, 35, 43–67. https://doi.org/10.1016/j.jempfin.2015.09.004
Anginer, D., & Demirguc-Kunt, A. (2011). Has the global banking system become more fragile over time? (No. 5849).
Anginer, D., Demirguc-Kunt, A., & Zhu, M. (2014). How does competition affect bank systemic risk? Journal of Financial Intermediation, 23(1), 1–26. https://doi.org/10.1016/j.jfi.2013.11.001
etc.