Top 10 Banks with highest Systematic Risk
NYU Stern has developed a new method of examining the risk level of a bank. This calculation takes three steps. First it estimates the daily drop in equity value of this firm that would be expected if the aggregate market falls more than 2%. This is called Marginal Expected Shortfall or MES. The measure incorporates the volatility of the firm and its correlation with the market, as well as its performance in extremes. These are estimated using asymmetric volatility, correlation and copula methods similar to those in other sections of VLAB. In a second step this is extrapolated to a financial crisis which involves a much greater fall over a much greater time period. Finally, equity losses expected in a crisis are combined with current equity market value and outstanding measures of debt to determine how much capital would be needed in such a crisis. A firm is assumed to require at least 8% capital relative to its asset value.
Here is the list of top 10 Banks with highest systematic risk:
via NYU Stern