Measuring systemic risk contribution: the Leave-One-Out z-score method

Abstract We propose a new systemic risk measure based on the z-score, which defines a Leave-One-Out (LOO) contribution to systemic risk. The LOO z-score measure quantifies the systemic risk contribution of individual banks by the difference between the joint risk-taking of a banking system and the risk-taking of the same system when excluding a bank. The accounting-based LOO z-score measure can be used as a complement to market-based systemic risk measures, and it can also assess systemic risk contribution for unlisted banks. Empirical results show that the LOO z-score measure can identify the four largest New Zealand banks as systemically important.