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Collection: Economics Working Papers Archive
In this paper, we present a compellingly simple yet innovative approach to capturing the buildup of systemic risk associated with commonalities in banks' asset holdings. We draw on a growing strand of theoretical literature that studies the systemic externalities of banks' balance sheet asset side allocations. By applying data aggregation and clustering techniques to publicly available balance sheet data, we uncover interesting patterns in the asset holdings of the major bank holding companies in the United States during the years 2001-2013. We augment our findings with theoretical analysis and insight. Based on our analysis, we construct a novel measure of systemic risk, ACRISK, where AC stands for asset commonality. This measure captures well the buildup of systemic risk that culminated in the global credit crisis, and provides empirical support to the asset commonality theoretical notions.
Sharon Blei and Bakhodir Ergashev