Using Weighted Shapley Values to Measure the Systemic Risk of Interconnected Banks. (6th April 2016)

• Record Type: Journal Article
• Authors: Lin, Junshan
• Other Names: Korhonen Iikka guestEditor.
• Is Part Of: Pacific economic review. Volume 23:Number 2(2018)
• Page Start: 244
• Page End: 270
• Publication Date: 2016-04-06
• Subjects: Pacific Area -- Economic conditions -- Periodicals; 330
• DOI: 10.1111/1468-0106.12155
• Languages: English
• ISSNs: 1361-374X

Abstract

Abstract: A macro‐prudential approach to financial regulation should reasonably evaluate the systemic risk of individual institutions. We introduce a measure of the systemic risk of interconnected banks using the weighted Shapley value, which characterizes banks' systemic risk by capturing two characteristics: (i) a bank's risk exposure of the primitive asset structure; and (ii) its position in the interbank network. An empirical implementation reveals that the primitive asset structure and interbank connections are main drivers of each bank's systemic risk. In addition, different types of interbank linkages (debt or share) make significant differences in affecting an individual bank's systemic risk.