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http://ssrn.com/abstract=1546384
 
 

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Are Banks Too Big To Fail? Measuring Systemic Importance of Financial Institutions


Chen Zhou


De Nederlandsche Bank; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

December 1, 2009


Abstract:     
We consider three measures on the systemic importance of a financial institution 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 theoretical 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 alternative measures on systemic importance should be considered. We provide the estimation methodology of systemic importance measures under the multivariate Extreme Value Theory (EVT) framework.

Number of Pages in PDF File: 40

Keywords: too big to fail, systemic risk, systemic importance, multivariate extreme value theory

JEL Classification: G21, C14

working papers series





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Date posted: February 4, 2010  

Suggested Citation

Zhou, Chen, Are Banks Too Big To Fail? Measuring Systemic Importance of Financial Institutions (December 1, 2009). Available at SSRN: http://ssrn.com/abstract=1546384 or http://dx.doi.org/10.2139/ssrn.1546384

Contact Information

Chen Zhou (Contact Author)
De Nederlandsche Bank ( email )
PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
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