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How to measure interconnectedness between banks, insurers and financial conglomerates

Author

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  • Hauton Gaël

    (Autorité de Contrôle Prudentiel et de Résolution (ACPR), 61 rue Taitbout, 75009 Paris, France)

  • Héam Jean-Cyprien

    (Autorité de Contrôle Prudentiel et de Résolution (ACPR); and CREST-LFA, 15 Boulevard Gabriel Péri, 92245 Malakoff cedex, France)

Abstract

Financial institutions’ interconnectedness is a key component of systemic risk. However there is still no consensus on its measurement. Using a unique database of network of exposures of French financial institutions, we compare three strategies to measure interconnectedness: closeness of exposure distributions, identification of core-periphery structure and contagion models. The closeness of exposure distributions is adequate to identify outlier institutions. The “core-periphery” structure, usually applied to banking network, is still valid with insurance companies. However this approach is not immune to size effect. This result contrasts with previous analyses where size was not accounted for. Contagion-based stress-tests are the best suited to capture institutions’ systemic fragility, emphasizing their importance as a supervisory tool.

Suggested Citation

  • Hauton Gaël & Héam Jean-Cyprien, 2016. "How to measure interconnectedness between banks, insurers and financial conglomerates," Statistics & Risk Modeling, De Gruyter, vol. 33(3-4), pages 95-116, December.
    • Handle: RePEc:bpj:strimo:v:33:y:2016:i:3-4:p:95-116:n:1
    DOI: 10.1515/strm-2014-1177
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    References listed on IDEAS

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