The recent global financial crisis of 2007-2008 highlighted the necessity of measuring systemic risk amongst banks, insurance firms, and other systemically important institutions, as the failure of these organisations could have incalculable consequences on the financial sector and spillover to the real economy. An investigation into systemic risk is limited in emerging markets, including South Africa, thus maintaining financial stability can be challenging for regulators due to inadequate risk measurements being applied as well as insufficient monitoring of the vulnerable role-players within the financial system. This paper employs two systemic risk measures: the Conditional Value-at-Risk measure referred to as CoVaR pioneered by Adrian and Brunnermeier (2011) and Granger causality tests proposed by Billio et al. (2012). CoVaR is used to determine the systemic risk contribution of individual institutions and Granger causality tests depict the interconnectedness within the financial system that leads to risk spillover to other institutions. The study analyses 22 financial firms within the banking, insurance, and financial services sectors for the period 2005-2017. The results suggest that spillovers increase during distressed periods and that banks and insurance firms are the highest contributors to systemic risk.

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Keywords

Systemic Risk, South Africa, CoVaR, Granger causality network.