Japanese and Chinese banks have overtaken European and US banks as the financial institutions with the highest levels of systemic risk, according to New York University's Stern Volatility Institute.Stern's V-Lab index is based on estimates of the amount of capital a financial institution would need to raise to continue normal operations in the event of a financial crisis.Its aggregate measure of 1200 financial institutions showed a US$4 trillion shortfall during the financial crisis. Since then, it has risen again, to around US$3 trillion.The estimated shortfall in the United States' banking system has come down from US$1 trillion to $300 billion and is rated as stable by Stern.Japan is the highest ranked country for systemic risk, with an estimated shortfall of more than $500 billion. China is ranked second, with a shortfall of a little under $500 billion. Ranked behind these are France, the US, the United Kingdom, Germany and Italy. Australia is ranked 15th, with an estimated shortfall of US$40 billion.The professor of management and financial services at New York University's Stern School of Business, Robert Engle, said systemic risk was a new phenomenon in China. "We have seen a big increase since 2011," said Engle, who was speaking at the Australasian Finance and Banking Conference, organised by the University of New South Wales' Australian School of Business.Engle said: "What this says is that China's banks are undercapitalised. Rising local government debt, which is a result of stimulus expenditure, and large… [numbers] of non-performing loans to state-owned enterprises are the cause."We don't see systemic risk in China as a big problem relative to the country's GDP, but it is rising. And there is every chance we have underestimated it."Engle said systemic risk had also gone up in some European countries since the financial crisis. These included Spain, Italy and Greece.