Modified systemic risk model with ∆CoVaR approach in banking system with an Emphasis on Bank Indicators

The present study presents the revised systemic risk model with the Changing conditional value-at-risk (∆CoVaR) approach in banking network with an emphasis on bank indicators. Systemic risk investigates the potential capacity of financial crisis spread among banks and ultimately the real sector of the economy through simultaneously increasing the fat tail of loss distribution. This is a descriptive-analytical research in terms of method and a developmental/applicative study in terms of purpose. The research time zone is 2009/03/21-2021/01/19. The research data includes the weekly average stock price of seven banks (Mellat, Tejarat, Saderat, EN Bank, Parsian, Karafarin, and Sina) listed in stock exchange and the weekly average of the general stock market index from Rahavardnovin system, and data related to the banks’ financial metrics are extracted from the financial statements of the banks in the Codal website.To measure each bank’s share in systemic risk, the measure (∆COVaR) is employed. We show the better fit of ∆CoVaR for measuring risk compared to VaR and CoVaR models. The ratings of the investigated banks are tested by means of two criteria (RMSE) and (MAE) and it is concluded that in some banks, the crisis has higher destructive effects on the entire financial system than that in other banks. Finally, the association between systemic risk and the financial parameters of the investigated banks is reviewed and it is concluded that the improvement of the capital adequacy ratio (CAR) has an inverse and significant relationship with systemic risk.