Abstract We propose a framework for estimating time-varying systemic risk contributions that is applicable to a high-dimensional and interconnected financial system. Tail risk dependencies and contributions are estimated based on a penalized two-stage fixedeffects quantile approach, which explicitly links time-varying interconnectedness to 1 systemic risk contributions. For the purposes of surveillance and regulation of financial systems, network dependencies in extreme risks are much more relevant than simple (mean) correlations. Thus, the framework provides a tool for supervisors, reflecting market's view of tail dependences and systemic risk contributions. The framework is applied to a system of 51 large European banks and 17 sovereigns in 2006-13, utilizing both equity and CDS prices. We provide new evidence on how banking sector fragmentation and sovereign-bank linkages evolved over the European sovereign debt crisis, and how it is reflected in estimated network statistics and systemic risk measures. Finally, our evidence provides an indication that the fragmentation of the European financial system has peaked
