Evaluating Chinese Systemic Important Financial Institutions and Some Policy Implications

Abstract

Abstract:

This paper introduces a Component Expected Shortfall method and uses the daily transaction data to identify the China's domestic Systemic Important Financial Institutions (SIFIs) in the banking, securities, insurances and trust sectors, and then applies the CoVaR method to test their robustness. The research results show that the SIFIs ranking is relatively stable over time and concentrated in a small number of institutions. Thus, policy-makers can focus on the SIFIs, and policies needn't change frequently. A comparative analysis of the CES contributions by different financial sectors shows that the banking sector dominates in systemic importance identification, which is followed by the insurance sector and the securities sector. This paper also proposes an approach to allocate the SIFIs into three categories based on their CES contributions and the robustness test shows that this classification is reasonable and practical. Finally, this paper applies the out-of-sample analysis and compares the results with in-sample analysis. The forecast provides some new ideas and policies for both researchers and policy-makers.

Key words: systemic important financial institutions, systemic risk, component expected shortfall, evaluating method, macro prudential regulation

Zhang Tianding, Zhang Yu. Evaluating Chinese Systemic Important Financial Institutions and Some Policy Implications[J]. , 2018, 30(1): 24-35.

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