Are banks too big to fail?
AbstractAbstract We consider three measures on the systemic importance of a financial institu- tion within a interconnected financial system. Based on the measures, we study the relation between the size of a financial institution and its systemic importance. From both theo- retical model and empirical analysis, we find that in analyzing the systemic risk posed by one financial institution to the system, size should not be considered as a proxy of systemic importance. In other words, the "too big to fail" argument is not always valid, and alter- native measures on systemic importance should be considered. We provide the estimation methodology of systemic importance measures under the multivariate Extreme Value Theory (EVT) framework.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 232.
Date of creation: Dec 2009
Date of revision:
Too big to fail; systemic risk; systemic importance; multivariate extreme value theory.;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-05 (All new papers)
- NEP-BAN-2010-02-05 (Banking)
- NEP-REG-2010-02-05 (Regulation)
- NEP-RMG-2010-02-05 (Risk Management)
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