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Measuring the systemic importance of interconnected banks

  • Drehmann, Mathias
  • Tarashev, Nikola

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622875

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