Systemic Risk Components as Deposit Insurance Premia

In light of current 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 de- composing a portfolio risk measure into components that are attributed to individual assets or activities. This paper considers the total premium required to insure all de- posits 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 compo- nents. This paper proposes a scheme for systemic risk attribution that could be used in setting deposit insurance premia.