A Framework to Determine Systematically Important Banks in Iran

Banks and credit institutions through attracting financial sources in the form of bank deposits and allocation them in the form of variety of loans, play an important and vital role in the economy of any country. Banking activities, due to Special features such as, high leverage degrees, existence of maturity mismatch between assets and liabilities, contagion the problems to other institutions, and the last but not least, having direct impact on Macroeconomic conditions, necessarily requires risk acceptance, which depends on the dimension, complexity of activity and degrees of systematically important and in the lack of effective supervision, can affect both economy and financial systems, domestically and even internationally. Systemic risk is the probability of sudden fall in total financial system and can lead to instability or chaos in financial markets. The systematically important institution is an entity that in the event of a crisis due to its special characteristics such as, size, market share, interconnectedness, cross boarder activities, complexity and etc. can have important effects on domestic or even international macroeconomic condition. So, the importance of Convergence in the field of managing banks and existent of homogenous rules and regulation in this very important industry is completely obvious. Considering that no study and research has been done about systematically important banks in Iran, the main goal of this research is to develop the methodology to determine systematically important banks in Iranian banking system and then measuring Systemic risk using ΔCoVaR and MES. The time period under review is from the beginning of 2014 to June 21, 2022. The results show that there are many qualitative similarities between the systemic risk calculated by theΔCoVaR and MES, despite the numerical differences. Also, according to the results of both methods, Tejarat, Parsian, Pasargad, Saderat, Novin Eghtesad and Mellat had the highest to lowest level of systemic risk in the study period respectively.