Systemic Risk and Productivity of the Major Australian Banks

Abstract

We measure the domestic systemic risk of the Australian major banks. We report systemic risk along five categories, namely, size, inter-connectedness, non-substitutability, complexity and domestic sentiment. We then carry out sensitivity analyses by changing equal weights in the categories, and examine the capital adequacy and inter-connectedness of the majors focusing on key ratios. In terms of sensitivity analyses, changing the equal weights do not influence systemic risk considerably, which indicates that the results are robust. Comparing systemic risk to productivity, we find that level systemic risk across time and high productivity are compatible, and rising systemic risk causes some inefficiency.