IMF report on using network models as basis for charges on systemically important banks

Recently the idea has been floated that systemically important financial institutions should be charged insurance premia to cover for government support in times of stress. The recent IMF report (April 2010) for G20 ministers now suggests that:

A risk-adjusted rate could be designed to address the contribution to systemic risk. Ideally, the rate would vary according to the size of the systemic risk externality, e.g., based on a network model which would take into account all possible channels of contagion.

In order to operationalize the network approach, however, more both theoretical and empirical research is needed – as well as access to more frequent and granular data.

A risk-adjusted rate could be designed to address the

contribution to systemic risk. Ideally, the rate would vary according to the size of the systemic risk

externality, e.g., based on a network model which would take into account all possible channels of

contagionA risk-adjusted rate could be designed to address the

contribution to systemic risk. Ideally, the rate would vary according to the size of the systemic risk

externality, e.g., based on a network model which would take into account all possible channels of

contagion.