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Attributing systemic risk to individual institutions

  • Nikola Tarashev
  • Claudio Borio
  • Kostas Tsatsaronis

An operational macroprudential approach to financial stability requires tools that attribute system-wide risk to individual institutions. Making use of constructs from game theory, we propose an attribution methodology that has a number of appealing features: it can be used in conjunction with popular risk measures, it provides measures of institutions’ systemic importance that add up exactly to the measure of system-wide risk and it easily accommodates uncertainty about the validity of the risk model. We apply this methodology to a number of constructed examples and illustrate the interactions between drivers of systemic importance: size, the institution’s risk profile and strength of exposures to common risk factors. We also demonstrate how the methodology can be used for the calibration of macroprudential capital rules.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 308.

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Length: 34 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:bis:biswps:308
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  1. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2010. "Measuring systemic risk," Working Paper 1002, Federal Reserve Bank of Cleveland.
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