Risk Attribution Using the Shapley Value: Methodology and Policy Applications

Nikola Tarashev (), Kostas Tsatsaronis () and Claudio Borio

Review of Finance, 2016, vol. 20, issue 3, 1189-1213

Abstract: We present the Shapley Value as a methodology for risk attribution and use it to derive measures of banks’ systemic importance. The methodology possesses attractive properties, such as fairness and efficiency. It also leads naturally to a framework for the analysis of different drivers of systemic importance: bank size, bank-specific risk, and the commonality of banks’ exposures. We prove that, all else equal, an increase in bank size leads to a more than proportional increase in systemic importance. We also show how alternative applications of the Shapley Value methodology can be used in designing policy tools with system-wide objectives.

Date: 2016
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