Systemic risk in financial institutions of BRICS: measurement and identification of firm-specific determinants

The aim of this paper is twofold. First, it measures the systemic risk contribution of banks, financial services, and insurance firms of each of BRICS member country for the period 2000–2015. Second, it empirically examines how firm-specific factors determine systemic risk in financial institutions of BRICS countries. To carry out the empirical analysis, the unbalanced firm-level data are used. To gauge the systemic risk of banks, financial services, and insurance firms, the Delta Conditional Value-at-Risk (∆CoVaR) methodology is applied. The panel regression approach is used to examine how firm-specific variables determine the level of systemic risk in different financial institutions of BRICS countries. The empirical findings suggest that the size of institution, the tier 1 ratio, the liquidity ratio, the operating profit margin ratio, and the market-to-book value ratio statistically significantly determine systemic risk in BRICS countries. The results are significant in devising financial regulations to decrease the influence of systemic risk factors in the respective economies.