# A systemic shock model for too big to fail financial institutions

## TL;DR

This paper introduces a new systemic shock model for analyzing the joint lifetimes of financial institutions, capturing dependence through a single systemic shock and applying it to assess systemic risk of European SIFI banks.

## Contribution

It proposes a novel dependence structure for systemic risk modeling using a single common shock, extending classical models, and applies it to real-world bank data.

## Key findings

- Dependence structure characterized via copula functions.
- Model captures dependence between systemic and idiosyncratic shocks.
- Application to European SIFI banks highlights systemic risk factors.

## Abstract

In this paper we study the distributional properties of a vector of lifetimes in which each lifetime is modeled as the first arrival time between an idiosyncratic shock and a common systemic shock. Despite unlike the classical multidimensional Marshall-Olkin model here only a unique common shock affecting all the lifetimes is assumed, some dependence is allowed between each idiosyncratic shock arrival time and the systemic shock arrival time. The dependence structure of the resulting distribution is studied through the analysis of its singularity and its associated copula function. Finally, the model is applied to the analysis of the systemic riskiness of those European banks classified as systemically important (SIFI).