Comparison of Systemic Financial Risks in the US before and after the COVID-19 Outbreak—A Copula–GARCH with CES Approach

Abstract

The analysis and prediction of systemic financial risks in the US during the COVID-19 pandemic is of great significance to the stability of financial markets in the US and even the world. This paper aims to predict the systemic financial risk in the US before and during the COVID-19 pandemic by using copula–GJR–GARCH models with component expected shortfall (CES), and also identify systemically important financial institutions (SIFIs) for the two comparative periods. The empirical results show that the overall systemic financial risk increased after the outbreak of the COVID-19 pandemic, especially in the first half of the year. We predicted four extreme risks that were basically successful in capturing the high risks in the US financial markets. Second, we identified the SIFIs, and depository banks made the greatest contribution to systemic risk from four financial groups. Third, after the outbreak of the epidemic, the share of Broker–Dealer and Other Institutions in the overall systemic risk has apparently increased. Finally, we recommend that the US financial regulators should consider macro-prudential guidance for major financial institutions, and we should pay more attention to Broker–Dealers, thereby improving the financial stability of the US and the global financial markets.