Measuring systemic risks and its impact on the banking sector

• Main Authors: Barrogo, Louise Reina D., Estalane, Aira Mae U., Sombillo, Pauline Beatrice I., Zuluaga, Katrina Mae C.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Banks and banking—Risk assessment—Philippines; Bank capital—Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/6321; https://animorepository.dlsu.edu.ph/context/etd_bachelors/article/6965/viewcontent/Measuring_Systemic_Risks_and_Its_Impact_on_the_Banking_Sector2.pdf
• Institution: De La Salle University

Despite its recent surfacing in local literature, the presence of systemic risk in the Philippine banking system could lead to unprecedented chains of financial failures if left unchecked. The group utilized data from eight of the largest banks in the Philippines, from the years 2007-2015, to determine the variables that influence bank performance during times of crisis, and whether the operations of each bank contribute to the risks of the other. Using value-at-risk measures, it was found that tier 1 capital provides the most effective buffer against losses in stock returns during times of crises, while bank size increases both volatility and losses. Furthermore, using conditional value-at-risk the researchers also found out that negative risk spillovers are present from other banks to BPI. The researchers recommended adherence to the current stringent capital requirements set by the Basel Accords however, they also recommend more research on the optimal levels of capital and size of each bank that would maximize efficiency and returns while minimizing risk.