Premium
Fire‐Sale Spillovers and Systemic Risk
Author(s) -
DUARTE FERNANDO,
EISENBACH THOMAS M.
Publication year - 2021
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.13010
Subject(s) - systemic risk , balance sheet , vulnerability (computing) , index (typography) , business , aggregate (composite) , computer science , economics , financial crisis , finance , computer security , materials science , world wide web , composite material , macroeconomics
We identify and track over time the factors that make the financial system vulnerable to fire sales by constructing an index of aggregate vulnerability. The index starts increasing quickly in 2004, before most other major systemic risk measures, and triples by 2008. The fire‐sale‐specific factors of delevering speed and concentration of illiquid assets account for the majority of this increase. Individual banks' contributions to aggregate vulnerability predict other firm‐specific measures of systemic risk, including SRISK and Δ CoVaR. The balance‐sheet‐based measures we propose are therefore useful early indicators of when and where vulnerabilities are building up.