Research puts a price on systemic threat

Research from the Bank for International Settlements (BIS) estimates that the cost of insuring against steep losses at major American banks had increased to up to $250 billion as of July 2008.

The research measures systemic risk by the price of insurance against financial distress, based on ex-ante measures of default probabilities of individual banks and forecasted asset-return correlations. The results suggest that the theoretical insurance premium that would be charged to protect against

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