The method of computing the SRI involves calculating two measures of insolvency risk, one for individual banking institutions (average distance–to–default) and the other for the banking system as a whole (portfolio distance–to–default), and then comparing the difference, or spread, between the two. The average distance–to–default (ADD) is constructed by first calculating the distance–to–default for each bank in the sample using data on its equity, liabilities, and options prices on its stock, which is then averaged across banks using the portfolio weights provided by State Street Global Advisors. The portfolio distance–to–default (PDD) is calculated using options on the KBE ETF (State Street Global Advisors’ SPDR S&P Bank ETF).