How We Predict the Stability of Financial Sector: The Conditional Value at Risk Technique Approach


This study aims to identify the level of systemic risk of each bank and the financial linkages between banks in Indonesia. In this study, researcher uses 41 banks that have been actively traded on the Indonesia Stock Exchange in the period 2013-2018. The data of stock capitalization of banks are used as prices in a portfolio of banking system. The method used in this study is the CVaR (Conditional Value at Risk) method which was introduced by Adrian and Brunerrmeir in 2008. The equilibrium of the system is assumed reached at optimum portfolio of the system. At this situation each bank contribution to systemic risk is analyzed, as well as its impact onto it when there is a change in capitalization of a certain bank. The result shows the impact of bank onto systemic risk is not always follow its size in contribution the systemic risk. Due to covariance’s among banks are some positive and others are negative, some banks have negative contribution to systemic risk while others’ are positive. There are 4 banks that have different behavior. These banks have negative contribution to the systemic risk. These banks are BMRI, PNBN, PNBS and NAGA. The negative impact to systemic risk is dominated by BMRI as much as -0.17%, and by PNBN as much as -0.04%. There are 2 major banks that have contribution to systemic risk; BBCA (3,01% or Rp 59,1 trillion) and BBRI (0,54% Rp 10,62 trillion). However their impact on systemic risk are different. The parameters of impact on systemic for BBCA and BBRI are 14,99% and 52,94% respectively. Thus the stability of the system is more sensitive to the volatility of Bank Rakyat Indonesia (BBRI) than of Bank Central Asia (BBCA).

Keywords: Systemic Risk, Financial Linkage, Value at Risk, Conditional Value at Risk, covariance banking

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