European SRISK evolution
Systemic risk measures for European financial institutions are constructed by the Center for Risk Management at HEC Lausanne. They are based on the methodology developed by Engle, Jondeau, and Rockinger (2012). SRISK measures the capital shortfall of a firm in case of a new financial crisis, defined as a 40% semi-annual decline of the world financial market. Return fo a firm is driven by the domestic, European, and world stock markets. The expected shortfall is directly based on a 40% semiannual decline of the world stock market. It is computed using 50'000 simulations of the complete model over a 6-month period. The measures are all expressed in billion euros. European systemic risk measures are developed in collaboration with the NYU Stern’s Volatility Institute, run by NYU Stern Professor and Nobel Laureate Robert Engle. On Feb 04, 2014 we performed an update of our methodology to take into account specificities of Cooperative Banks. A note on how we deal which such a situation may be found here.
The implementation of our model follows best practices, however, the model may not apply to banks with complex and opaque governance structures. It cannot be assured that the data used is correct. For these various reasons, our measures should be considered as indications. They should not be used for trading purposes.
Financial institutions involve several categories, including banks, insurance companies, and real estate firms. Each of these categories has its own characteristics, in particular in the way financial leverage is built. For this reason, the comparison of SRISK measures across categories should be taken carefully.