Measuring Systemic Risk: A Review of the Main Approaches

Scholars, Regulatory and Supervisory Authorities have always been engaged in the search for efficient approaches to measuring systemic risk. Such procedures are extremely useful, first and foremost, in understanding and managing the stability and resilience of a financial-economic system as a whole, in forecasting possible crisis situations, and in implementing effective macro-prudential policies in response to the turbulence that can be generated by systemic risk in the financial system. Actually, over time, different approaches to measuring systemic risk have been defined. Undoubtedly, these methods are difficult to compare and often result in assessment parameters that are difficult to cointegrate. This chapter describes and analyses the main approaches for measuring systemic risk currently used in the literature. In more detail, it analyses the Probability Distribution Measures, the Network Analysis Measures, the Illiquidity Measures, the Contingent Claims and Default Measures and, last but not least, the Macro-economic Measures.