Dr. Jeremy Staum (Northwestern University)

Title: Systemic Risk Components and Deposit Insurance Premia

Abstract: In light of recent events, there have been several proposals to establish a theory of financial system risk management analogous to portfolio risk management.  One important aspect of portfolio risk management is risk attribution, the process of decomposing a portfolio risk measure into components that are attributed to individual assets or activities.  We consider the total premium required to insure all deposits in the banking system as the systemic risk measure.  The component of this risk measure attributable to a bank could serve as the bank's deposit insurance premium.  The richer structure of a banking system, compared to a portfolio, makes the theory of systemic risk components more complicated than the theory of portfolio risk components.  We propose a scheme for systemic risk attribution that could be
used in setting deposit insurance premia.

Joint work with Ming Liu of Morgan Stanley.