Abstract
The study examines the systemic risk of banking sector in Pakistan for
the first time using marginal expected shortfall. The data set is based
on a period of 16 years from 2002 to 2017. The top five systemically
important financial institutions are Habib bank limited, United bank
limited, Muslim commercial bank limited, Bank AlFalah limited and
Bank of Punjab limited. Moreover, the study highlights firm and
country level variables that are significant in explaining systemic risk
taking notably, market power, deposit ratio, size, non-performing
loans, regulatory quality and government borrowing. The results
outline that systemic risk can be curbed by increasing the deposit ratio
that reduces the sensitivity of financial institutions to the stress of the
market. By the same token, large organizations are more prone to
infecting others and are involved in higher systemic risk taking.
Moreover, the study also elucidates the role of high concentration (low
competition) in exacerbating systemic risk .Improved regulatory quality
deters systemic risk taking, whereas increased government debt
contributes to the buildup of systemic risk. The study outlines that
micro prudential policies should be aligned with macro prudential
policies to ameliorate excessive systemic risk taking.
Hasan Hanif , Muhammad Naveed, Mobeen Ur Rehman. (2017) Modeling Systemic Risk in a Developing Economy: Application of Marginal Expected Shortfall, Journal of Managerial Sciences, Volume 11, Issue 4.
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