Systemic risk under the radar: evidence from building societies and challenger banks

Skouralis, A. ORCID: https://orcid.org/0000-0003-0835-1457 (2026) Systemic risk under the radar: evidence from building societies and challenger banks. Journal of International Financial Markets, Institutions and Money, 107. 102267. ISSN 1042-4431 doi: 10.1016/j.intfin.2025.102267

Abstract/Summary

This paper provides the first comprehensive quantification of the systemic risk posed by non-listed financial institutions in the UK, focusing on building societies, digital-only challenger banks, and foreign-owned retail banks. Using an indirect estimation approach, systemic risk is measured through balance sheet characteristics, calibrated against listed institutions' SRISK values. The findings reveal that Nationwide ranks among the top ten systemically important institutions, while several other building societies contribute significantly to aggregate systemic risk. In contrast, digital-only challenger banks exhibit low systemic risk due to high equity ratios and limited interconnectedness, despite rapid growth and persistent financial losses. Santander, an foreign-owned retail bank, emerges as the ninth most systemically important institution, with risk levels comparable to systemically-important domestic banks. We conduct extensive robustness checks, including alternative predictors and SRISK specifications, out-of-sample forecasting, and Principal Component Analysis, which confirms the strong co-movement between building societies and the largest UK banks. Finally, we compare SRISK with traditional Z-score metrics to highlight their complementary nature. These findings underscore the need to extend systemic risk frameworks beyond listed entities and support calls to expand the stress testing perimeter to include large non-listed and foreign-owned firms.

Item Type	Article
URI	https://centaur.reading.ac.uk/id/eprint/127758
Identification Number/DOI	10.1016/j.intfin.2025.102267
Refereed	Yes
Divisions	Henley Business School > Real Estate and Planning
Publisher	Elsevier
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