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Measuring the systemic importance of interconnected banks

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  • Drehmann, Mathias
  • Tarashev, Nikola
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    Abstract

    We propose a method for measuring the systemic importance of interconnected banks. In order to capture contributions to system-wide risk, our measure accounts fully for the extent to which a bank (i) propagates shocks across the system and (ii) is vulnerable to propagated shocks. An empirical implementation of this measure and a popular alternative reveals that interconnectedness is a key driver of systemic importance. However, since the two measures reflect the impact of interbank borrowing and lending on system-wide risk differently, they can disagree substantially about the systemic importance of individual banks.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Intermediation.

    Volume (Year): 22 (2013)
    Issue (Month): 4 ()
    Pages: 586-607

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    Handle: RePEc:eee:jfinin:v:22:y:2013:i:4:p:586-607

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    Web page: http://www.elsevier.com/locate/inca/622875

    Related research

    Keywords: Systemic risk; Shapley value; Interbank network;

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    Cited by:
    1. Claudia M. Buch & Björn Hilberg & Lena Tonzer, 2014. "Taxing Banks: An Evaluation of the German Bank Levy," CESifo Working Paper Series 4704, CESifo Group Munich.
    2. Martinez-Jaramillo, Serafin & Alexandrova-Kabadjova, Biliana & Bravo-Benitez, Bernardo & Solórzano-Margain, Juan Pablo, 2014. "An empirical study of the Mexican banking system’s network and its implications for systemic risk," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 242-265.
    3. Vinko Zlati\'c & Giampaolo Gabbi & Hrvoje Abraham, 2014. "Reduction of systemic risk by means of Pigouvian taxation," Papers 1406.5817, arXiv.org.
    4. Castro, Carlos & Ferrari, Stijn, 2014. "Measuring and testing for the systemically important financial institutions," Journal of Empirical Finance, Elsevier, vol. 25(C), pages 1-14.

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