This paper aims to assess the level of systemic risk of China's financial system along with the main systemic risk contributors over the period from January 2010 to December 2016, a period spanning the deflation of China's property bubble, the banking liquidity crisis, and the stock market crash. To this end we divide the financial system into three sectors, namely: banks, insurance and brokerage industries, and real estate, applying the ΔCoVaR introduced by Adrian and Brunnermeier (2016) as the measure for systemic risk. Our findings show that the systemic risk level of China's financial system reacted to the main systemic events covered by our sample period, reaching a major peak during the stock market crash of 2015. We further show, through the Wilcoxon signed rank test, that the systemic risk level of the financial system and sectors significantly increased after the main systemic events. In order to provide a formal systemic risk ranking of the financial sectors, we apply the bootstrap Kolmogorov-Smirnov test as developed by Abadie (2002), finding that the banking sector contributed the most, followed by real estate and subsequently insurance and brokerage industries. Finally, comparing banks systemic risk's determinants between China and the US, the reduced level of competition among banks in China is found to increase banks’ systemic risk, contrary to what is found in the US.

We study the relationship between climate change and financial systemic risk. First, we test whether, to what extent and how quickly the systemic risk of US banking and insurance sectors reacts to billion-dollar weather and climate disasters. We prove that some extreme events can exacerbate financial systemic risk and provide insights about the different timing at which the reaction of the systemic risk measures takes place. Second, we investigate through quantile regressions how the performance of green and brown market indexes affects the systemic risk of the two US financial sectors. We observe that higher levels of the green indexes reduce systemic risk more than a raise in brown indexes, with an increasing magnitude in tail conditions. A raise in the riskiness of the green indexes seems to significantly increase systemic risk, with the effect being stronger than that of an increase in the riskiness of brown indexes. Our results confirm the importance of the adoption of appropriate policies aiming at contrasting the raise in the frequency and severity of climate disasters. Our findings are also important in the perspective of the likely increase (decrease) in the exposure of financial firms towards green (brown) companies, induced by the policy decisions taken to combat climate change, and in terms of the implications for banks’ and insurers’ risk management models and procedures.

We extract an option-implied measure for systemic risk, the Systemic Options Value-at-Risk (SOVaR), from put option prices that can capture the buildup stage of systemic risk in the financial sector earlier than the standard systemic risk measures (SRMs). Our measure exhibits more timely early warning signals of main events around the global financial crisis than the main SRMs. SOVaR shows significant predictive power for macroeconomic downturns as well as future recessions up to one year ahead. Our results are robust to various specifications, breakdowns of financial sectors, and controlling for other main risk measures proposed in the literature.

By analyzing a sample of US and European listed banks over the years 2015–2022, we investigate the relationship between greenwashing behavior and systemic risk. We use a measure of greenwashing that considers the consistency of what banks disclose with what they actually do to address ESG-related issues. We find that engaging in greenwashing practices contributes to undermining financial stability, with a rise in systemic risk which is exacerbated for less efficient and larger banks. Market seems to acknowledge a superior informative value to banks’ actual ESG performance, giving less importance to what they disclose. Finally, a better performance in each of the environmental, social and governance dimensions reduces systemic risk, but only a bank’s commitment in addressing environment-related issues seems to moderate the contribution of greenwashing to financial system fragility.