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Measuring the systemic importance of interconnected banks

  • Nikola Tarashev
  • Mathias Drehmann

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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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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  17. Mistrulli, Paolo Emilio, 2011. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1114-1127, May.
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  21. Drehmann, Mathias & Tarashev, Nikola, 2013. "Measuring the systemic importance of interconnected banks," Journal of Financial Intermediation, Elsevier, vol. 22(4), pages 586-607.
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  24. Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2010. "Attributing systemic risk to individual institutions," BIS Working Papers 308, Bank for International Settlements.
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