There is much discussion today about systemic risks. In particular, the notion of “systemic” banks or corporations has become popular, which indicates entities that have the capability of causing considerable damage to the economy in case of default. Such entities are often termed as “Too Big To Fail” and their footprint on the national and global economies is, clearly, substantial. It is therefore of great interest to monitor closely systemic banks and corporations and to keep an eye on their resilience.
Resilience is a new quantity in finance. It represents the capacity of a business to withstand shocks and extreme events. Because our global economy is characterized by fluctuations, turbulence and is highly interconnected, business resilience is surely a good-to-have property.
Assetdyne has developed a tool which measures the resilience of a corporation based on the evolution of its stock price. It is therefore a simplified approach which, evidently, is based on the assumption that a healthy company will have an equally “healthy” evolution of its stock price. The huge advantage of this approach is that analysis can be performed on a daily basis. This is of immense value. Conventional ratings are published on a yearly basis when a Consolidated Balance Sheet is issued. Even quarterly financials are unable to capture the intricacy and speed of our complex economy. Stock markets, on the other hand, provide a real-time reflection of the situation.
We have investigated the resilience of the systems (portfolios) of the largest US and EU banks based on the evolution of their respective stock prices. The so-called Complexity Maps, which illustrate the interconnections between the various entities, are illustrated below and have been synthesized on March 7-th, 2014.
|US banks Resilience = 69,9%|
|UE banks Resilience = 81,7%|
The size of each node in the Complexity Maps corresponds to the footprint (weight) of each bank on the system. Large nodes, therefore, point to banks which, at the time of the analysis, have the largest impact on the systems in terms of its resilience and stability. Complexity Maps are interactive and may be navigated by clicking on the following links:
As far the resilience, complexity and Resilience Rating of each bank, those of the largest banks are indicated in the table below.
|Bank of America||79,59||9,96|