Early warning of systemic risk in global banking: eigen-pair R number for financial contagion and market price-based methods

Abstract We analyse systemic risk in the core global banking system using a new network-based spectral eigen-pair method, which treats network failure as dynamical stability problem. This is compared with market price-based Systemic Risk Indexes (SRIs), viz. Marginal Expected Shortfall (MES), Delta Conditional Value-at-Risk (Delta-CoVaR), and Capital Measure of (SRISK) cross-border setting. Unlike paradoxical price based measures, underestimate during periods asset booms, method on bilateral balance sheet data gives early-warning instability terms tipping point that analogous to R number epidemic models. For this regulatory capital thresholds are used. Furthermore, centrality measures identify systemically important vulnerable systems. Market SRIs contemporaneous crisis they found covary like VaR betas.