How to Measure Interconnectedness between Banks, Insurers and Financial Conglomerates?

Financial institutions’ interconnectedness is a key component of systemic risk. However there is still no consensus on its measurement. Using a unique database of network of exposures of French financial institutions, we compare three strategies to measure interconnectedness: closeness of exposure distributions, identification of core-periphery structure and contagion models. Closeness of exposure distributions is adequate to identify outlier institutions. The "core-periphery" structure, usually applied to banking network, is still valid with insurance companies. However this structure is no longer adequate when exposures are normalized by equity, from a risk perspective. This result contrasts with previous analysis where size was not accounted for. Contagion-based stress-tests are the best suited to capture institutions’ systemic fragility, emphasizing their importance as a supervisory tool. Last, building on the assessment of these measurement strategies, we shed light on the pivotal role of financial conglomerates active in both the banking sector and the insurance sector.