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David Veredas, ECARES Print
Friday, 16 March 2012, 12:15 - 13:15

David Veredas, ECARES


Ranking Systemically Important Institutions

Abstract: Based on the definition of systemic risk given by Jean--Claude Trichet at Clare College in Cambridge (Dec. 2009), we propose a simple methodology for ranking systemically important institutions. We view firm's risks as a network with vertices equal to the volatility shocks and edges their correlations. We use dynamic centrality measures to rank the firms in terms of risk connectedness and firm characteristics. An application to all firms in S\&P500 reveals that i) the Fed unconventional monetary policies did have a significant effect in reducing the systemic risk of most financial firms after the collapse of Lehman Brothers, ii) the connections between the real economy and the financial sector are fundamental, iii) firms from the real economy can be more systemic than financials, suggesting that the next systemic crisis may come from the non--financial sector, iv) medium and small--size firms can be as systemic as the largest corporations, indicating that the too--big--to--fail dogma may actually be unrealistic.

Location: R42.2.113
Contact: Claude Adan, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it