Attributing Systemic Risk to Individual Institutions

29 Pages Posted: 28 Jun 2010 Last revised: 3 Nov 2013

See all articles by Nikola A. Tarashev

Nikola A. Tarashev

Bank for International Settlements (BIS) - Monetary and Economic Department

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

Kostas Tsatsaronis

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: May 2010

Abstract

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.

Keywords: Systemic Importance, Macroprudential Approach, Shapley Value

JEL Classification: C15, C71, G20, G28

Suggested Citation

Tarashev, Nikola A. and Borio, Claudio E.V. and Tsatsaronis, Konstantinos, Attributing Systemic Risk to Individual Institutions (May 2010). BIS Working Paper No. 308. Available at SSRN: https://ssrn.com/abstract=1631761 or http://dx.doi.org/10.2139/ssrn.1631761

Nikola A. Tarashev

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Claudio E.V. Borio (Contact Author)

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Konstantinos Tsatsaronis

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
(41 61) 280 8082 (Phone)
(41 61) 280 9100 (Fax)

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