MES vs ∆CoVaR: Empirical evidence from Pakistan

Figures & data

Table 1. Measurement and Empirical Evidence on Independent Variables

Variable	Measurements	Empirical Evidence	Expected Influence Systemic Risk
Bank Level Determinants
Idiosyncratic Risk	Residual volatility of Returns (Market Model)	Strobl (2016)	Posituve
Size	$\hspace{0.17em}Logarithm$ $ofTotalAssets$	Souza et al. (2015), Strobl (2016)	Positive
Leverage	1$\frac{Equity}{TotalAssets}$	Lin et al. (2016).	Positive
Charter Value	$\frac{MarketCapitalization}{Bookvalueofcommonequity}$	Weib Bostandzic and Neumann (Weib et al., 2014)	Positive/ Negative
Profitability	Return on Assets (ROA)	de Mendonca et al. (De Mendonça et al., 2018). Veretto and Zhao (Varotto & Zhao, 2018)	Positive/ Negative
Liquidity	Financial power measured as$\frac{CashFlowfromOperatingcivities}{Liabilities}$	Kleinow and Nell (2015), Kleinow et al. (2017),	Negative
Income Diversification (Non-Interest Income)	$\frac{Non-Interestincome}{TotalinterstIncome}$	Strobl (2016) Qin and Zhu (2014)	Positive/ Negative
Credit Quality (Non-Perf Loans)	$\frac{LoanLossProvision}{TotalAssets}$	Kleinow &Nell (Kleinow & Nell, 2015), Kleinow et al. (2017)	Positive
Deposit Ratio	$\frac{Deposit}{TotalAssets}$	Varetto and Zhao (Varotto & Zhao, 2018), Leaven et al. (Laeven et al., 2016)	Negative
Sector Level Determinants
Munificence	1. Regressing time against the Revenues of banking sector over the period of study, and 2.Taking the ratio of the regression slope coefficient to the mean value of revenues over the same period.	Mishra & Modi (Mishra & Modi, 2013), Hanif et al. (2019)	Negative
Dynamism	Standard error of munificent slope coefficient divided by the mean value of revenues over the same period.	Boyd (1995), Hanif et al. (2019)	Positive
Concentration	HHI is the sum of the squares of the market shares (assets) of each bank in the financial system	Anginer et al. (2014) Hanif et al. (2019)	Negative
Country level Determinants
Contractionary Monetary Policy	Monetary policy Interest Rate	De Mendonca and da Silva (De Mendonça et al., 2018),	Positive
Political Stability	Index of instability of Democracy.	Kleinow &Nell (Kleinow & Nell, 2015),	Negative
Government Debt Ratio	$\frac{GovernmentDebt}{GDP}$	Kleinow et al. (2017)	Positive
Bank Claim	$\frac{BankclaimsonGovt}{GDP}$	Kleinow &Nell (Kleinow & Nell, 2015), Kleinow et al. (2017)	Positive
Regulatory Quality	Ability of government to develop and implement sound policies.	Kleinow and Nell (2015)	Negative

Table 2. Quantile regression with stock return (losses) and system return (losses)

	Quantile 0.01		Quantile 0.50
	$\hspace{0.17em}{R}_t^i$	$\hspace{0.17em}{R}_t^{System}$	$\hspace{0.17em}{R}_t^i$	$\hspace{0.17em}{R}_t^{System}$
Market Return	0.6309*** (3.50)	0.5242 (0.26)	0.8624*** (61.81)	0.6012*** (7.26)
Term Spread	0.1561 (0.27)	−0.065 (0.62)	0.0306* (1.72)	0.0588***(3.13)
Change in t-bill	−2.4723*** (−2.27)	−1.8864*** (−8.85)	−0.4075*** (−3.16)	−0.3068*** (−6.08)
Rolling SD	−1.6486*** (−5.54)	−1.6632*** (−6.13)	−0.0097 (−0.43)	0.0893*** (5.22)
Inflation	−0.9732*** (−2.64)	−0.8107***(−6.36)	0.0265 (0.90)	−0.0602** (−2.76)
Change Spread	−1.1523 (−0.99)	−0.4935 ***(−5.65)	0.0298* (1.89)	0.0088 (0.0.58)
$\hspace{0.17em}{R}_t^i$	____	0.4432*** (2.99)	____	0.2624*** (4.91)
Constant	−3.9452*** (−6.93)	−2.8365***(−4.51)	−0.2251***(−3.88)	− 0.1707***(−3.54)
Number of obs	16,034	16,034	16,034	16,034
$Pseudo{R}^2$	0.4624	0.6249	0.3497	0.3873

Note: Table shows the results of 1% and 50% quantile regression with return of individual financial institution and financial system as dependent variables. 1%, 5% and 10% significance level is shown by (***), (**) and (*) respectively. T-values are shown in parenthesis.

Table 3. Descriptive Statistics of MES in percentage

Variable	Mean	Std. Dev.	Min	Max
MES (%)	2.7465	1.4697	0.6001	8.9941
$Va{R}_{95,t}^i$	−8.115	7.183	−51.457	−2.241
$Va{R}_{99,t}^i$	−12.600	13.623	−84.954	−3.664
$\mathrm{\Delta }CoVa{R}_{99,t}^i$	−1.3957	1.551	−7.106	−0.184
$\mathrm{\Delta }CoVa{R}_{95,t}^i$	−0.811	0.572	−4.043	−0.083
$\hspace{0.17em}Va{R}_{99,t}^{System}$	−5.128	3.193	−32.116	−2.182

Note: The table shows weekly statistics of risk measures. The values are shown in weekly percentage points.

Table 4. Comparative ranking of systemically important financial institutions

Rank	MES	Value	∆CoVaR	Value
1	Habib Bank Limited	0.0601	Muslim Commercial Bank	−0.0362
2	United Bank Limited	0.0522	United Bank Limited	−0.0309
3	Muslim Commercial Bank	0.0501	Habib Bank Limited	−0.0289
4	Bank Alfalah Limited	0.0364	National Bank Limited	−0.0265
5	Bank of Punjab Limited	0.0334	Allied Bank Limited	−0.0253
6	Allied Bank Limited	0.0321	Meezan bank Limited	−0.0196
7	National Bank Limited	0.0311	Bank Al-Habib Limited	−0.0179
8	Meezan bank Limited	0.0305	Bank of Punjab Limited	−0.0176
9	Askari Bank Limited	0.0283	Bank Alfalah Limited	−0.0142
10	Habib Metro Bank Limited	0.0255	Standard Chartered Bank Limited	−0.0096
11	Bank Al-Habib Limited	0.0249	Faysal Bank Limited	−0.0084
12	Faysal Bank Limited	0.0227	Habib Metro Bank Limited	−0.0082
13	Standard Chartered Bank limited	0.0219	Askari Bank Limited	−0.0072
14	JS Bank Limited	0.0182	Bank of Khyber Limited	−0.0056
15	Bank Islami Limited	0.0165	Soneri Bank Limited	−0.0041
16	Silk Bank Limited	0.015	BankIslami Pakistan Limited	−0.0039
17	Samba Bank Limited	0.0143	Silk Bank Limited	−0.0032
18	Soneri bank Limited	0.0135	Samba Bank limited	−0.0031
19	Summit Bank Limited	0.0110	JS Bank Limited	−0.0027
20	Bank of Khyber Limited	0.0109	Summit Bank Limited	−0.0010

Table 5. Kendal’s tau coefficient

Kendall’s tau-a	Kendall’s tau-b	Prob
0.4662	0.4662	0.0000

Table 6. Descriptive statistics

Variable	Mean	Std. Dev.	Min	Max
Bank
Idiosyncratic	2.0425	1.0283	1.0791	6.0126
Size	8.1563	5.5534	6.5903	9.4110
Profitability	0.0247	0.0675	−0.0763	0.2844
Non-Interest	0.1968	0.1021	0.0060	0.3841
Liquidity	0.0682	0.0899	−0.3158	0.2744
Leverage	0.8053	0.9564	0.6339	0.8775
Credit Quality	0.0392	0.0368	0.0024	0.2742
Deposit Ratio	0.7552	0.8620	0.4411	0.8973
Charter Value	1.638	1.076	−0.735	8.3920
Sector
Munificence	0.1019	0.0906	−0.0131	0.2282
Concentration	972.1130	103.562	852.5903	1528.883
Dynamism	0.0280	0.0124	0.0007	0.0614
Country
Political	−2.4010	0.3442	−2.8100	−1.5831
Claims	0.2170	0.7017	0.1141	0.3168
Gov Debt	0.6706	0.0906	0.5670	0.8791
Regulatory Quality	−0.649	0.096	−0.901	−0.483
Monetary Interest	0.0822	0.0274	0.0575	0.1447

Table 7. Estimation of ∆CoVaR/MES based on firm level variables (2000–20)

	$\mathrm{\Delta }CoVaR\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}$		$MES\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}$
2	SGMM1 SGMM		SGMM1 SGMM 2
$\mathbf{S}\mathbf{y}{\mathbf{s}}_{t-1}$	0.087*(0.052)	0.073** (0.038)	0.224* (0.130)	0.444** (0.182)
IDIO	0.701**(0.358)	0.827* (0.463)	0.427** (0.188)	0.350* (0.189)
Size	1.114* (0.683)	1.263** (0.642)	0.501* (0.260)	0.565* (0.301)
Leverage	1.334* (0.747)	1.263* (0.670)	1.025* (0.667)	1.821*** (0.801)
Liquidity	−0.080* (0.048)	−0.043* (0.028)	−0.105* (0.0583)	−0.045* (0.025)
Non-Interest	0.100 (0.016)	0.172* (0.105)	0.185 (0.132)	0.183 (0.144)
Deposit	−0.472 (0.398)	−0.271 (2.106)	−1.006* (0.590)	−0.810* (0.442)
Non-Performing	0.364 (0.925)	−0.112 (0.238)	0.215* (0.126)	0.064* (0.043)
Charter Value	0.991 (3.076)	0. 583 (0.721)	0.210 (0.176)	0.201 (0.163)
Profitability	−0.054 (0.133)	−0.040 (0.102)	−0.046* (0.027)	−0.024* (0.014)
Num of obs	307	307	307	307
F-stat(P-value)	23.02 (0.000)	29.42 (0.000)	50.60 (0.000)	172.30 (0.000)
N.Ins/N.Groups	0.75	0.75	0.80	0.80
Hansen-stat(p-value)	_____	7.81 (0.601)	_____	6.26 (0.553)
Sargan(p-value)	6.72(0.662)	13.07(0.329)	9.09 (0.366)	10.11 (0.453)
AR(1)p-value	−1.36(0.284)	−1.51 (0.120)	− 2.00 (0.039)	−2.33 (0.001)
AR(2)p-value	−1.64(0.243)	−0.19 (0.881)	−01.76 (0.127)	−0.47 (0.606)

Note: Table reports the results one step and two step system GMM. 1%, 5% and 10% significance are shown by (*), (**) and (***) respectively. Parenthesis show Standard errors. Order one and two serial correlations are shown by AR (1) and AR (2) respectively and are reported for both one and two step system GMM. The exogeneity of the instruments is shown by Sargan and J-stat. Stata reports J-stat only for two-step system GMM, resultantly only Sargan stat is shown for one step system GMM.

Table 8. Estimation of ∆CoVaR based on sector level variables (2000–2017)

	$\mathrm{\Delta }CoVaR\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}$		$MES\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}$
SGMM1 SGMM 2		SGMM1 SGMM 2
$Systemi{c}_{t-1}$	0.150* (0.088)	0.1117*** (0.000)	0.501** (0.242)	0.763** (0.391)
Munificence	−3.064*** (1.084)	−2.092** (1.022)	−2.118** (0.951)	1.064* (0.671)
Dynamism	1.101 (0.946)	1.519** (0.751)	0.521* (0.301)	0.543 (0.484)
Concentration	−0.0005* (0.0003)	−0.0017 (0.002)	0.0008 (0.004)	0.0001* (0.0000)
Num of obs	307	307	307	307
F-stat(P-value)	37.66 (0.000)	199.224 (0.000)	30.09 (0.000)	198.453 (0.000)
N.Ins/N.Groups	0.60	0.75	0.65	0.75
Hansen-stat(p-value)	_____	21.36 (0.122)	_____	16.36 (0.149)
Sargan(p-value)	11.26(0.152)	9.53 (0.105)	16.92(0.142)	9.74 (0.103)
AR(1)p-value	−3.03(0.002)	−1.05 (0.017)	−2.45(0.004)	−2.03 (0.020)
AR(2)p-value	−1.53 (0.128)	−2.09 (0.143)	−1.20 (0.144)	−1.46 (0.130)

Note: Table reports the results one step and two step system GMM. 1%, 5% and 10% significance are shown by (*), (**) and (***) respectively. Parenthesis show Standard errors. Order one and two serial correlations are shown by AR (1) and AR (2) respectively and are reported for both one and two step system GMM. The exogeneity of the instruments is shown by Sargan and J-stat. Stata reports J-stat only for two-step system GMM, resultantly only Sargan stat is shown for one step system GMM.

Table 9. Estimation of systemic risk based on country level variables (2000–2017)

	$\mathrm{\Delta }CoVaR\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}$		$MES\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}\mathrm{\_}$
SGMM1 SGMM 2		SGMM1 SGMM 2
∆$Systemi{c}_{t-1}$	0.350* (0.208)	0.188*** (0.065)	0.758** (0.413)	0.502*** (0.119)
Political Stb	−1.850** (0.954)	−1.663*** (0.549)	−0.511** (0.260)	−0.253* (0.136)
Monetary Pol	0.091** (0.043)	0.107 (0.074)	0.043** (0.023)	0.010** (0.006)
Bank Claims	0.077* (0.039)	0.098* (0.053)	−0.098* (0.058)	−0.113* (0.062)
Government Debt	0.007 (0.174)	0.011 (0.087)	0.088 (0.064)	0.023* (0.012)
Regulations	0.1565 (4.117)	0.183 (0.770)	0.945 (0.911)	0.664 (0.583)
F-stat(P-value)	29.28 (0.000)	123.20 (0.000)	19.20 (0.000)	122.63 (0.000)
N.Ins/N.Groups	0.75	0.75	0.75	0.85
Hansen-stat(p-value)	______	18.09 (0.113)	________	17.54 (0.154)
Sargan(p-value)	10.16 (0.197)	12.29 (0.153)	6.34 (0.217)	4.97 (0.164)
AR(1)p-value	1.53 (0.146)	1.98 (0.070)	−8.60 (0.000)	−2.05 (0.001)
AR(2)p-value	−1.49 (0.162)	−1.22 (0.202)	−0.32 (0.766)	0.43 (0.315)

Note: Table reports the results one step and two step system GMM. 1%, 5% and 10% significance are shown by (*), (**) and (***) respectively. Parenthesis show Standard errors. Order one and two serial correlations are shown by AR (1) and AR (2) respectively and are reported for both one and two step system GMM. The exogeneity of the instruments is shown by Sargan and J-stat. Stata reports J-stat only for two-step system GMM, resultantly only Sargan stat is shown for one step system GMM.

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