de Conference “ Beyond the Financial Crisis : Systemic Risk , Spillovers and Regulation ” Dresden , 28 - 29 October 2010 Dale F Gray

The global financial crisis that began in 2007 has forced a re-examination of risk transmission in the financial sector and how it affects financial stability. Risk management concentrates on the analysis of risk at the level of the individual institution and system-wide. This paper illustrates how contingent claims analysis (CCA) can be applied in new ways to improve systemic financial sector risk management. A new framework (“Systemic CCA”) is developed to measure systemic risk with immediate practical applications to the analysis of implicit government contingent liabilities from the financial sector of a large G-7 economy. In addition, the framework also helps quantify the individual banks’ contributions to government contingent liabilities and systemic risk in the event of a systemic bank distress.