Monday, July 19, 2010


The RISK page of the Volatility Laboratory presents a variety of risk measures for top US Financial Firms. These measures are updated daily and reveal several dimensions of risk. Some measure the risks of individual firms and others are firm contributions to the risk of the financial system and the economy as a whole. Historical estimates of each of these risk measures can be plotted to see the changing performance of individual firms.

The heart of the analysis is the analysis of Marginal Expected Shortfall or MES. This is a prediction of how much the stock of a particular financial company will decline in a day, if the whole market declines by 2%. The measure incorporates the volatility of the firm and its correlation with the market, as well as its performance in extremes. To estimate the equity losses in a future financial crisis, the debt equity ratio of the firm is combined with the MES to reflect the decline that might be expected in a crisis when many firms are undercapitalized. This is called ERISK. Finally, the ERISK measure is used to determine the capital shortfall that a firm would face in a crisis. When equity values fall below prudential levels, the debt loses value and creditors throughout the economy are impacted. The Systemic Risk Contribution, SRISK%, is the percentage of all capital shortfall that would be experienced by this firm in the event of a crisis. Firms with a high percentage of capital shortfalls in a crisis are not only the biggest losers in a crisis but also are the firms that create or extend the crisis. This SRISK% is the NYU Stern Systemic Risk Ranking of the US Financial sector. Some of the firms on this list are already under government protection. Their risk status is a reflection of the costs to the system if the government guarantees were suddenly withdrawn.

To sort the firms by any of these categories, simply click on the heading. To plot any of the series, click on the firm name and select the series to be plotted. You can select the time horizon of the plot. To see help, click on the "?s" in the page.

Systemic Risk Top Five

Bank Of America 15.86%, Citigroup 14.86%, Freddie Mac 10.46%, Fannie Mae 10.05%, JP Morgan Chase 7.71%

The Top Ten is rounded out with AIG, Goldman Sachs, Morgan Stanley, Prudential Financial, Hartford Financial Services Group.

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