Using Shapley's Asymmetric Power Index to Measure Banks' Contributions to Systemic Risk

23 Pages Posted: 28 Oct 2012

Date Written: October 26, 2012

Abstract

An individual bank can put the whole banking system at risk if its losses in response to shocks push losses for the system as a whole above a critical threshold. We determine the contribution of banks to this systemic risk using a generalisation of the Shapley value; a concept originating in co-operative game theory. An important feature of this approach is that the order in which banks fail in response to a shock depends on the composition of the banks’ asset portfolios and capital buffers. We show how these factors affect banks’ contributions to systemic risk, and the extent to which these contributions depend on the level of the critical threshold.

Keywords: Shapley value, systemic risk, bank regulation

JEL Classification: C71, G01, G21, G28

Suggested Citation

Garratt, Rodney and Webber, Lewis and Willison, Matthew, Using Shapley's Asymmetric Power Index to Measure Banks' Contributions to Systemic Risk (October 26, 2012). Bank of England Working Paper No. 468. Available at SSRN: https://ssrn.com/abstract=2167335 or http://dx.doi.org/10.2139/ssrn.2167335

Rodney Garratt

Independent ( email )

No Address Available
United States

Lewis Webber

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Matthew Willison (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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