Are there simple yet reliable indicators of banks' systemic importance? In addressing this question, this article explores three model-based measures of systemic importance and finds that bank size helps approximate each of them. A bank's total interbank lending and borrowing provide useful...

We develop a measure of systemic importance that accounts for the extent to which a bank propagates shocks across the banking system and is vulnerable to propagated shocks. Based on Shapley values, this measure gauges the contribution of interconnected banks to systemic risk, in contrast to...

Are there simple yet reliable indicators of banks' systemic importance? In addressing this question, this article explores three model-based measures of systemic importance and finds that bank size helps approximate each of them. A bank's total interbank lending and borrowing provide useful...

An operational macroprudential approach to financial stability requires tools that attribute system-wide risk to individual institutions. Making use of constructs from game theory, we propose an attribution methodology that has a number of appealing features: it can be used in conjunction with...

Why should risk management systems account for parameter uncertainty? In order to answer this question, this paper lets an investor in a credit portfolio face non-diversifiable estimation-driven uncertainty about two parameters: probability of default and asset-return correlation. Bayesian...

Is systematic monetary policy a driver of the forward premium puzzle, i.e. the tendency of high interest-rate currencies to appreciate, thus strongly violating Uncovered Interest Parity (UIP)? We address this question by studying a battery of monetary policy rules in a small open economy that is...

We critically review the state of the art in macro stress testing, assessing its strengths and weaknesses. We argue that, given current technology, macro stress tests are ill-suited as early warning devices, ie as tools for identifying vulnerabilities during seemingly tranquil times and for...

We characterise empirically the financial cycle using two approaches: analysis of turning points and frequency-based filters. We identify the financial cycle with the medium-term component in the joint fluctuations of credit and property prices; equity prices do not fit this picture well. We...

Early warning indicators (EWIs) of banking crises should ideally be evaluated on the basis of their performance relative to the macroprudential policy maker's decision problem. We translate several practical aspects of this problem - such as difficulties in assessing the costs and benefits of...