Measuring the Systemic Importance of Interconnected Banks

26 Pages Posted: 7 Jun 2011

See all articles by Mathias Drehmann

Mathias Drehmann

Bank for International Settlements (BIS)

Nikola A. Tarashev

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

Date Written: March 2011

Abstract

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

Suggested Citation

Drehmann, Mathias and Tarashev, Nikola A., Measuring the Systemic Importance of Interconnected Banks (March 2011). BIS Working Paper No. 342, Available at SSRN: https://ssrn.com/abstract=1859244

Mathias Drehmann (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Nikola A. Tarashev

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

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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