Googling SIFIs

Abstract

To measure the systemic risk in financial markets, and rank systemically important financial institutions (SIFIs), we propose a methodology based on the Google PageRank algorithm. We understand the economic system as interconnected risk shocks of firms in both the financial sector and the real economy. By taking into account both sectors, we demonstrate the efficacy of intervention programs, such as the TARP, as circuit breakers in the propagation of crises - something not evident in applications which address only financial firms.

Keywords: Systemic risk, ranking, financial institutions

JEL Classification: G01, G21, E02, G28