Monitoring Banking System Connectedness with Big Data

Galina Hale and Jose Lopez

No 2018-01, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: The need to monitor aggregate financial stability was made clear during the global financial crisis of 2008-2009, and, of course, the need to monitor individual financial firms from a microprudential standpoint remains. However, linkages between financial firms cannot be observed or measured easily. In this paper, we propose a procedure that generates measures of connectedness between individual firms and for the system as a whole based on information observed only at the firm level; i.e., no explicit linkages are observed. We show how bank outcome variables of interest can be decomposed, including with mixed-frequency models, for how network analysis to measure connectedness across firms. We construct two such measures: one based on a decomposition of bank stock returns, the other based on a decomposition of their quarterly return on assets. Network analysis of these decompositions produces measures that could be of use in financial stability monitoring as well as the analysis of individual firms' linkages.

JEL-codes: C32 G21 G28 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2018-04-23
New Economics Papers: this item is included in nep-ban, nep-big and nep-rmg
Note: The first version of this paper was April 23, 2018, and was published originally as "Monitoring Banking System Fragility with Big Data".
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Monitoring Banking System Connectedness with Big Data (2023)
Journal Article: Monitoring banking system connectedness with big data (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2018-01

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DOI: 10.24148/wp2018-01

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