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Should SIFIs protect themselves from systemic risk?
Journal of Risk Management in Financial Institutions,
8
(1),
27-33
(2015)
Abstract
With regulatory action on systemically important financial institutions (SIFIs) in the background, we go back to first principles and look at the implications of economic capital models for systemic risk management. Economic capital analysis of SIFIs’ exposure to one another puts into question a number of commonly held assumptions, especially when it comes to the capital absorbed at high confidence levels by bilateral derivatives exposures. We advocate concentration pricing, asymmetric economic capital requirements and a renewed emphasis on economic risk taking as ways in which SIFIs can mitigate their own exposure to systemic risk.
Keywords: SIFIs; concentration; systemic risk; economic capital; derivatives; wrong-way risk
The full article is available to subscribers to the journal.
Author's Biography
Federico Galizia is the Chief Risk Officer at the Inter-American Development Bank (IDB). He advises the President, the Executive Vice President and the Board of Directors on their oversight of market, credit, socio-environmental and operational risk, in accordance with the shareholders’ triple-A mandate. A founding member of the Multilateral Development Banks (MDB) CRO Forum, he sponsors implementation of the G20 Action Plan to Optimize MDB Balance Sheets. Federico was previously Head of Risk and Portfolio Management at the European Investment Fund and Adviser to the President of the European Investment Bank. He holds a PhD in Economics from Yale University and has published and taught MBA courses in the fields of risk management and international finance.
Citation
Galizia, Federico (2015, January 1). Should SIFIs protect themselves from systemic risk?. In the Journal of Risk Management in Financial Institutions, Volume 8, Issue 1. https://doi.org/10.69554/ADNX5256.
© Henry Stewart
Publications LLP
Publications LLP