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On systemic risk formation

The role of risk spillovers, interconnectivity and macroprudential policy
PhD ceremony:Mr J.J. (Jakob) Bosma
When:December 18, 2014
Supervisors:prof. dr. K.F. (Kasper) Roszbach, Prof. M. Koetter
Co-supervisor:dr. L. (Lammertjan) Dam
Where:Academy building RUG
Faculty:Economics and Business
On systemic risk formation

This dissertation comprises of four studies on the topic of modeling systemic risk formation in the financial sector. The main findings indicate that beyond the sheer number of banks and their sizes, it is their degree of connectedness that pertains to systemic risk formation. In particular, banks that we find to be most connected with other financial institutions are more likely to receive bailout support during financial crises. Another result indicates that when it comes to regulating the banking sector, regulators have to take into account dependencies between policy tools in their design. Ignoring these dependencies may result in undesirable and unanticipated outcomes. Yet another contribution of this thesis is a presentation of a credit-risk model that may assist in the pricing of Credit Default Spreads. Additionally, the model incorporates the presence of implicit guarantees extended by financial regulators to banks in order to maintain financial stability in the financial industry. A validation study shows that these estimated implicit guarantees indeed pertain to future bailouts being channeled to the subject bank.