Measuring the Systemic Importance of Interconnected Banks
26 Pages Posted: 7 Jun 2011
Date Written: March 2011
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.
Keywords: Systemic risk, Shapley values, Interbank positions
JEL Classification: C15, G20, G28, L14
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