Systemic Risk Measures : Taking Stock from 1927 to 2023

We assess the efficacy of systemic risk measures that rely on U.S. financial firms' stock return co-movements with market- or sector-wide returns under stress from 1927 to 2023. We ascertain stress episodes based on widening of corporate bond spreads and narrative dating. Systemic risk measures exhibit substantial and robust predictive power in explaining the cross-section of market realized outcomes, viz., volatility and returns, during stress episodes. The measures also help predict bank failures and balance-sheet outcomes, confirming their relevance for understanding risks to the real economy emanating from banking sector fragility. Overall, market-based systemic risk measures offer a promising complement to macro-prudential and supervisory assessments of the financial sector