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Measuring the systemic importance of interconnected banks

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Author Info

  • Nikola Tarashev
  • Mathias Drehmann

Abstract

We develop a measure of systemic importance that accounts for the extent to which a bank propagates shocks across the banking system and is vulnerable to propagated shocks. Based on Shapley values, this measure gauges the contribution of interconnected banks to systemic risk, in contrast to other measures proposed in the literature. An empirical implementation of our measure reveals that systemic importance depends materially on the bank's role in the interbank network, both as a borrower and as a lender. We also find substantial differences between alternative measures, which implies that prudential authorities should be careful in choosing the underlying approach.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 342.

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Length: 26 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:bis:biswps:342

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Related research

Keywords: Systemic risk; Shapley values; Interbank positions;

This paper has been announced in the following NEP Reports:

References

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  1. Xin Huang & Hao Zhou & Haibin Zhu, 2009. "Assessing the systemic risk of a heterogeneous portfolio of banks during the recent financial crisis," Finance and Economics Discussion Series 2009-44, Board of Governors of the Federal Reserve System (U.S.).
  2. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2010. "Measuring systemic risk," Working Paper 1002, Federal Reserve Bank of Cleveland.
  3. Celine Gauthier & Alfred Lehar & Moez Souissi, 2010. "Macroprudential Regulation and Systemic Capital Requirements," Working Papers 10-4, Bank of Canada.
  4. Mathias Drehmann & Nikola Tarashev, 2011. "Systemic importance: some simple indicators," BIS Quarterly Review, Bank for International Settlements, March.
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Citations

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Cited by:
  1. Martin Saldías Zambrana, 2010. "Systemic risk analysis using forward-looking distance-to-default series," Working Paper 1005, Federal Reserve Bank of Cleveland.
  2. Mardi Dungey & Matteo Luciani & David Veredas, 2012. "Ranking Systemically Important Financial Institutions," Tinbergen Institute Discussion Papers 12-115/IV/DSF44, Tinbergen Institute.
  3. Diego Avanzini & Alejandro Jara, 2013. "A PCA Approach to Common Risk Exposures in the Chilean Banking System," Working Papers Central Bank of Chile 707, Central Bank of Chile.
  4. Aldasoro, Iñaki & Angeloni, Ignazio, 2013. "Input-Output-based Measures of Systemic Importance," MPRA Paper 49557, University Library of Munich, Germany.
  5. Mardi Dungey & Matteo Luciani & David Veredas, 2012. "Ranking Systemically Important Financial Institutions," Tinbergen Institute Discussion Papers 12-115/IV/DSF44, Tinbergen Institute.
  6. Masciantonio, Sergio, 2013. "Identifying, ranking and tracking systemically important financial institutions (SIFIs), from a global, EU and Eurozone perspective," MPRA Paper 46788, University Library of Munich, Germany.
  7. Augusto Hasman, 2013. "A Critical Review Of Contagion Risk In Banking," Journal of Economic Surveys, Wiley Blackwell, vol. 27(5), pages 978-995, December.
  8. Drehmann, Mathias & Tarashev, Nikola, 2013. "Measuring the systemic importance of interconnected banks," Journal of Financial Intermediation, Elsevier, vol. 22(4), pages 586-607.
  9. Christian Weistroffer, 2011. "Identifying Systemically Important Financial Institutions (SIFIs)," Working Papers id:4383, eSocialSciences.
  10. Sigbjørn Atle Berg, 2011. "Systemic surcharges and measures of systemic importance," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 19(4), pages 383-395, November.
  11. Arnold, Bruce & Borio, Claudio & Ellis, Luci & Moshirian, Fariborz, 2012. "Systemic risk, macroprudential policy frameworks, monitoring financial systems and the evolution of capital adequacy," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3125-3132.
  12. Chen Zhou & Nikola Tarashev, 2013. "Looking at the tail: price-based measures of systemic importance," BIS Quarterly Review, Bank for International Settlements, June.
  13. Luiz A. Pereira da Silva & Adriana Soares Sales & Wagner Piazza Gaglianone, 2012. "Financial Stability in Brazil," Working Papers Series 289, Central Bank of Brazil, Research Department.
  14. di Iasio, Giovanni & Battiston, Stefano & Infante, Luigi & Pierobon, Federico, 2013. "Capital and Contagion in Financial Networks," MPRA Paper 52141, University Library of Munich, Germany.

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