We examine pitfalls in the use of return-based measures of systemic risk contributions (SRCs). For both linear and nonlinear return frameworks, assuming normal and heavy-tailed distributions, we identify nonexotic cases in which a change in a bank’s systematic risk, idiosyncratic risk, size, or contagiousness increases the risk of the system but lowers the measured SRC of the bank. Assessments based on estimated SRCs could thus produce false interpretations and incentives. We also identify potentially adverse side effects: A change in a bank’s risk structure can make the measured SRC of its competitors increase more strongly than its own.
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