This paper proposes a theoretically sound and easy-to-implement way to measure the systemic risk of financial … institutions using publicly available accounting and stock market data. The measure models credit risk of banks as a put option on …-sector losses from systemic default risk as the value of a put option written on a portfolio of aggregate bank assets whose exercise …

We provide a theoretical foundation for the claim that prolonged periods of easy monetary conditions increase bank risk … taking. The net effect of a monetary policy change on bank monitoring (an inverse measure of risk taking) depends on the … balance of three forces: interest rate pass-through, risk shifting, and leverage. When banks can adjust their capital …

This paper proposes a theoretically based and easy-to-implement way to measure the systemic risk of financial … the face value of the debt of the entire sector. We conceive of an individual bank's systemic risk as its contribution to … losses or reluctant to exercise the call, the government itself becomes a secondary source of systemic risk. We apply our …