Early Warning Systems for Systemic Banking Risk: Critical Review and Modeling Implications

Banks and Bank Systems 5.2 (2010), pp. 199-211

13 Pages Posted: 4 Apr 2013 Last revised: 8 Apr 2013

See all articles by Dieter Gramlich

Dieter Gramlich

Baden-Wuerttemberg Cooperative State University Mosbach (DHBW)

Gavin Miller

Independent

Mikhail V. Oet

Case Western Reserve University - Weatherhead School of Management; Federal Reserve Banks - Federal Reserve Bank of Cleveland

Stephen J. Ong

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: May 1, 2010

Abstract

Growing complexity and episodic turmoil in the financial system call for reassessment of existing early warning systems (EWSs) for systemic risk. This paper critically reviews the extensive EWS literature and typology and proposes a new class of supervisory models. The paper also discusses important design implications for an efficient EWS. The new class of supervisory models for systemic risk should be built from an integrated perspective and model EWS according to the users' objectives and competencies. It should incorporate both microprudential and macroprudential perspectives, as well as the structural considerations of the financial system itself. From the financial supervisor's point of view, an EWS involves an ex ante approach to regulation designed to highlight conditions that have in the past been associated with systemic risk. Forward-looking supervisory instruments become more important as they allow ex ante policy action and can reduce the need for ex post regulation.

Suggested Citation

Gramlich, Dieter and Miller, Gavin and Oet, Mikhail V. and Ong, Stephen J., Early Warning Systems for Systemic Banking Risk: Critical Review and Modeling Implications (May 1, 2010). Banks and Bank Systems 5.2 (2010), pp. 199-211, Available at SSRN: https://ssrn.com/abstract=2244422

Dieter Gramlich (Contact Author)

Baden-Wuerttemberg Cooperative State University Mosbach (DHBW) ( email )

Lohrtalweg 10
Mosbach, 74821
Germany

Gavin Miller

Independent ( email )

Mikhail V. Oet

Case Western Reserve University - Weatherhead School of Management ( email )

364 PBL Building
Cleveland, OH 44106
United States

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States
216.774.2684 (Phone)
216.579.2932 (Fax)

Stephen J. Ong

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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