Title: Systemic risk measures relevance: A permutation test approach to European banks
Authors: Francesca Parpinel - University Ca\' Foscari of Venice (Italy) [presenting]
Claudio Pizzi - University Ca Foscari Venice (Italy)
Lorenzo Frattarolo - Universita Ca Foscari (Italy)
Abstract: The financial stability board defines the systemically important financial institutions as characterized by an important size, complexity and systemic interconnectedness, such that a possible their failure would produce a breakdown to the whole financial system and economic activity. The current determination of these institutions is based on yearly balance-sheet variables and expert judgment. A statistical procedure based on a permutation test is proposed in order to cluster systemically important financial institutions splitting the financial system. In particular, the weights of a combination of partial permutation tests are optimized, basing on several well-known systemic risk measures, available at daily frequency. The procedure will be applied to the European banking institutions, for which the European Banking Union fully discloses information used in the choice of systemically important financial institutions. The sample of banks in European Banking Authority is chosen, for which a stock quote is available. The results are tested to reproduce as close as possible the selection of systemically important financial institutions made by the Basel committee and to investigate in this way their relevance in the choice.