The Effect of the Interbank Network Structure on Contagion and Common Shocks

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ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis The Effect of the Interbank Network Structure on Contagion and Common Shocks by : Co-Pierre Georg

Download or read book The Effect of the Interbank Network Structure on Contagion and Common Shocks written by Co-Pierre Georg and published by . This book was released on 2016 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a dynamic multi-agent model of a banking system with central bank. Banks optimize a portfolio of risky investments and riskless excess reserves according to their risk, return, and liquidity preferences. They are linked via interbank loans and face stochastic deposit supply. Evidence is provided that the central bank stabilizes interbank markets in the short-run only. Comparing different interbank network structures, it is shown that money-center networks are more stable than random networks. Systemic risk via contagion is compared to common shocks and it is shown that both forms of systemic risk require different optimal policy responses.

Handbook on Systemic Risk

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Publisher : Cambridge University Press
ISBN 13 : 1107023432
Total Pages : 993 pages
Book Rating : 4.1/5 (7 download)

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Book Synopsis Handbook on Systemic Risk by : Jean-Pierre Fouque

Download or read book Handbook on Systemic Risk written by Jean-Pierre Fouque and published by Cambridge University Press. This book was released on 2013-05-23 with total page 993 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook on Systemic Risk, written by experts in the field, provides researchers with an introduction to the multifaceted aspects of systemic risks facing the global financial markets. The Handbook explores the multidisciplinary approaches to analyzing this risk, the data requirements for further research, and the recommendations being made to avert financial crisis. The Handbook is designed to encourage new researchers to investigate a topic with immense societal implications as well as to provide, for those already actively involved within their own academic discipline, an introduction to the research being undertaken in other disciplines. Each chapter in the Handbook will provide researchers with a superior introduction to the field and with references to more advanced research articles. It is the hope of the editors that this Handbook will stimulate greater interdisciplinary academic research on the critically important topic of systemic risk in the global financial markets.

Filling in the Blanks

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ISBN 13 :
Total Pages : 23 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Filling in the Blanks by : Kartik Anand

Download or read book Filling in the Blanks written by Kartik Anand and published by . This book was released on with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: The network pattern of financial linkages is important in many areas of banking and finance. Yet bilateral linkages are often unobserved, and maximum entropy serves as the leading method for estimating counterparty exposures. This paper proposes an efficient alternative that combines information-theoretic arguments with economic incentives to produce more realistic interbank networks that preserve important characteristics of the original interbank market. The method loads the most probable links with the largest exposures consistent with the total lending and borrowing of each bank, yielding networks with minimum density. When used in a stress-testing context, the minimum density solution overestimates contagion, whereas maximum entropy underestimates it. Using the two benchmarks side by side defines a useful range that bounds the cost of systemic stress present in the true interbank network when counterparty exposures are unknown.

CoMap: Mapping Contagion in the Euro Area Banking Sector

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Publisher : International Monetary Fund
ISBN 13 : 1498312071
Total Pages : 63 pages
Book Rating : 4.4/5 (983 download)

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Book Synopsis CoMap: Mapping Contagion in the Euro Area Banking Sector by : Mehmet Ziya Gorpe

Download or read book CoMap: Mapping Contagion in the Euro Area Banking Sector written by Mehmet Ziya Gorpe and published by International Monetary Fund. This book was released on 2019-05-10 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a novel approach to investigate and model the network of euro area banks’ large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We develop a Contagion Mapping model fully calibrated with bank-level data to study the contagion potential of an exogenous shock via credit and funding risks. We find that tipping points shifting the euro area banking system from a less vulnerable state to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics.

Network Effects and Systemic Risk in the Banking Sector

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ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (945 download)

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Book Synopsis Network Effects and Systemic Risk in the Banking Sector by :

Download or read book Network Effects and Systemic Risk in the Banking Sector written by and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a review of recent research on the structure of interbank relations and theoretical models developed to assess the contagious potential of shocks (default of single units) via the interbank network. The empirical literature has established a set of stylized facts that includes a fat-tailed distribution of the number of banks, disassortativity of credit links and a pronounced persistence of existing links over time. These topological features correspond to the existence of money center banks, the importance of relationship banking and the self-organization of the interbank market into a core-periphery structure. Models designed to replicate these topological features exhibit on average more contagious potential than baseline models for the generation of random networks (such as the Erdös-Renyi or preferential attachment mechanisms) that do not share the stylized facts. Combining different channels of contagion such as interbank exposures, portfolio overlaps and common exposure to non-financial borrowers, one typically finds that different contagion channels interact in a distinctly nonlinear way.

Insights in European Interbank Network Contagion

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ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Insights in European Interbank Network Contagion by : Dionisis Philippas

Download or read book Insights in European Interbank Network Contagion written by Dionisis Philippas and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Purpose - We analyse the importance of regulatory requirements and interbank connections to financial stability by looking at a large number of European and UK banks.Design/Methodology - We model interbank contagion using insights from the Susceptible Infected Recovered model. We construct scale-free networks with preferential attachment and growth, applying simulated interbank data to capture the size and scale of connections in the network. We proceed to shock these networks per country and we perform Monte Carlo simulations to calculate mean total losses and duration of infection. Finally, we examine the regulatory requirement effects of contagion in terms of Core Tier 1 Capital Ratios for affected banking systems.Findings - We find that shocks in smaller banking systems may cause smaller overall losses but tend to persist longer, leading to important policy implications for crisis containment.Originality - We infer the interbank domestic and cross border exposures of banks employing the RAS algorithm. We use an extend sample of 169 European banks, that also captures effects on the UK as well as the Eurozone interbank market. Finally, we provide evidence of the effects of contagion on each bank, allowing for bank heterogeneity by comparing the bank's relative financial strength to the strength of the contagion that is modelled by the number and the volume of bilateral connections.

Cross-border Interbank Contagion in the European Banking Sector

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ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (97 download)

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Book Synopsis Cross-border Interbank Contagion in the European Banking Sector by : Silvia Gabrieli

Download or read book Cross-border Interbank Contagion in the European Banking Sector written by Silvia Gabrieli and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Interconnectedness and Contagion Analysis: A Practical Framework

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Publisher : International Monetary Fund
ISBN 13 : 1513517856
Total Pages : 49 pages
Book Rating : 4.5/5 (135 download)

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Book Synopsis Interconnectedness and Contagion Analysis: A Practical Framework by : Mrs.Jana Bricco

Download or read book Interconnectedness and Contagion Analysis: A Practical Framework written by Mrs.Jana Bricco and published by International Monetary Fund. This book was released on 2019-10-11 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: The analysis of interconnectedness and contagion is an important part of the financial stability and risk assessment of a country’s financial system. This paper offers detailed and practical guidance on how to conduct a comprehensive analysis of interconnectedness and contagion for a country’s financial system under various circumstances. We survey current approaches at the IMF for analyzing interconnectedness within the interbank, cross-sector and cross-border dimensions through an overview and examples of the data and methodologies used in the Financial Sector Assessment Program. Finally, this paper offers practical advice on how to interpret results and discusses potential financial stability policy recommendations that can be drawn from this type of in-depth analysis.

Liquidity and Crises

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Publisher : Oxford University Press, USA
ISBN 13 : 0195390717
Total Pages : 719 pages
Book Rating : 4.1/5 (953 download)

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Book Synopsis Liquidity and Crises by : Franklin Allen

Download or read book Liquidity and Crises written by Franklin Allen and published by Oxford University Press, USA. This book was released on 2011-02-03 with total page 719 pages. Available in PDF, EPUB and Kindle. Book excerpt: One important cause of the 2007-2009 crisis was illiquidity combined with exposure of many financial institutions to liquidity needs. But what is liquidity and why is it so important for financial institutions to command enough liquidity? This book brings together classic articles and recent contributions to this important field.

Network Structure Indirect Losses and Financial Contagion in Inhomogeneous Stochastic Interbank Networks

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ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (111 download)

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Book Synopsis Network Structure Indirect Losses and Financial Contagion in Inhomogeneous Stochastic Interbank Networks by : Nadine Mari Walters

Download or read book Network Structure Indirect Losses and Financial Contagion in Inhomogeneous Stochastic Interbank Networks written by Nadine Mari Walters and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We introduce new tiered bank network structures, allowing for many di erent bank sizes, and compare risk propagation in these structures with the well-known Erd©)℗+os-R©2℗þenyi, assortative and disassortative structures. The simulations indicate that in the presence of market sentiment and liquidity e ects, the details of the structures in combination with the distribution of assets, the system℗þs interconnectedness and its size are crucially important in determining the risk of major capital loss in the network. In fact, even networks with similar levels of tiering can behave markedly di erent depending on these factors. In the absence of market sentiment and liquidity e ects, the di erences between the network structures is smaller. This highlights the importance of considering the network structure in conjunction with network characteristics, market sentiment and liquidity e ects. This implies that policy actions aimed at influencing a network℗þs characteristics must consider all aspects unique to that particular system and cannot follow a 'one-size-fits-all℗þ approach. The framework is illustrated with an application using South African bank balance sheet data. Spikes in simulated assessments of systemic risk agree closely with spikes in documented subjective assessments of this risk. This indicates that network models can be useful for monitoring systemic risk levels. In a large network setting, the study then considers the fraction of nodes that default in stochastic, inhomogeneous financial networks following an initial shock to the system. Results for deterministic sequences of networks are generalized to stochastic networks to account for interbank lending relationships that change frequently. A general class of inhomogeneous stochastic networks is proposed for use in systemic risk research, and we illustrate how results that hold for Erd©)℗+os-R©2℗þenyi networks can be generalized to the proposed network class. The network structure of a system is determined by interbank lending behaviour which may vary according to the relative sizes of the banks. We then use the results to illustrate how network structure influences the systemic risk inherent in large banking systems.

Cross-Border Interbank Contagion Risk Analysis

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Publisher : Cambridge University Press
ISBN 13 : 1108898173
Total Pages : 101 pages
Book Rating : 4.1/5 (88 download)

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Book Synopsis Cross-Border Interbank Contagion Risk Analysis by : Roman Matousek

Download or read book Cross-Border Interbank Contagion Risk Analysis written by Roman Matousek and published by Cambridge University Press. This book was released on 2020-07-30 with total page 101 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Element provides a detailed overview of the structural changes in the Asia-Pacific region from the early 2000s onwards. It reviews the most relevant literature on this important topic. The following two research areas are explored: first, by deploying visual network analysis (VNA), we analyse cross-border interbank claims and liabilities of the individual countries located in the Asia-Pacific region. Such an analysis evaluates interbank exposures to systematically important banks within the specific market. The important advantage of VNA is that it allows us to examine the 'hierarchical' cross-country interbank contagion risk that seems to have been neglected in similar studies. Secondly, we evaluate the contagion risk to the individual countries spreading from the financial centres in Hong Kong, Singapore, Tokyo, New York and London. The analysis unveils links and statistical factors that could be used as a key tool for detecting the potential triggers of systemic risk.

Estimating Bilateral Exposures in the German Interbank Market

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Publisher :
ISBN 13 :
Total Pages : 37 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Estimating Bilateral Exposures in the German Interbank Market by : Christian Upper

Download or read book Estimating Bilateral Exposures in the German Interbank Market written by Christian Upper and published by . This book was released on 2016 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit risk associated with interbank lending may lead to domino effects, where the failureKreditrisiken aus Interbankbeziehungen können zu Dominoeffekten führen indem der.

The Oxford Handbook of the Economics of Networks

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Publisher : Oxford University Press
ISBN 13 : 0190216832
Total Pages : 857 pages
Book Rating : 4.1/5 (92 download)

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Book Synopsis The Oxford Handbook of the Economics of Networks by : Yann Bramoullé

Download or read book The Oxford Handbook of the Economics of Networks written by Yann Bramoullé and published by Oxford University Press. This book was released on 2016-03-01 with total page 857 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Oxford Handbook of the Economics of Networks represents the frontier of research into how and why networks they form, how they influence behavior, how they help govern outcomes in an interactive world, and how they shape collective decision making, opinion formation, and diffusion dynamics. From a methodological perspective, the contributors to this volume devote attention to theory, field experiments, laboratory experiments, and econometrics. Theoretical work in network formation, games played on networks, repeated games, and the interaction between linking and behavior is synthesized. A number of chapters are devoted to studying social process mediated by networks. Topics here include opinion formation, diffusion of information and disease, and learning. There are also chapters devoted to financial contagion and systemic risk, motivated in part by the recent financial crises. Another section discusses communities, with applications including social trust, favor exchange, and social collateral; the importance of communities for migration patterns; and the role that networks and communities play in the labor market. A prominent role of networks, from an economic perspective, is that they mediate trade. Several chapters cover bilateral trade in networks, strategic intermediation, and the role of networks in international trade. Contributions discuss as well the role of networks for organizations. On the one hand, one chapter discusses the role of networks for the performance of organizations, while two other chapters discuss managing networks of consumers and pricing in the presence of network-based spillovers. Finally, the authors discuss the internet as a network with attention to the issue of net neutrality.

Multi-layered Interbank Model for Assessing Systemic Risk

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ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (957 download)

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Book Synopsis Multi-layered Interbank Model for Assessing Systemic Risk by : Mattia Montagna

Download or read book Multi-layered Interbank Model for Assessing Systemic Risk written by Mattia Montagna and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Interbank Contagion

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ISBN 13 :
Total Pages : 40 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Interbank Contagion by : Steve Y. Yang

Download or read book Interbank Contagion written by Steve Y. Yang and published by . This book was released on 2017 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The potential impact of interconnected financial institutions on interbank financial systems is a financial stability concern for central banks and regulators. A number of algorithms/methods have been developed to extrapolate latent interbank risk exposures. However, most use highly stylized network models and reconstruction methods with global optimality lending allocation approaches such as maximizing entropy or minimizing costs. This paper argues that U.S. bank lending and borrowing decisions are largely suboptimal and performance-driven. We present an agent-based model to endogenously reconstruct interbank networks based on 6,600 banks' decision rules and behaviors reflected in quarterly balance sheets. The model formulation reproduces dynamics similar to those of the 2007-09 financial crisis and shows how bank losses and failures arise from network contagion and lending market illiquidity. When calibrated to post-crisis data from 2011-14, the model shows the banking system has reduced its likelihood of bank failures through network contagion and illiquidity, given a similar stress scenario.

ABBA: An Agent-Based Model of the Banking System

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Publisher : International Monetary Fund
ISBN 13 : 1484300688
Total Pages : 33 pages
Book Rating : 4.4/5 (843 download)

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Book Synopsis ABBA: An Agent-Based Model of the Banking System by : Mr.Jorge A Chan-Lau

Download or read book ABBA: An Agent-Based Model of the Banking System written by Mr.Jorge A Chan-Lau and published by International Monetary Fund. This book was released on 2017-06-09 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: A thorough analysis of risks in the banking system requires incorporating banks’ inherent heterogeneity and adaptive behavior in response to shocks and changes in business conditions and the regulatory environment. ABBA is an agent-based model for analyzing risks in the banking system in which banks’ business decisions drive the endogenous formation of interbank networks. ABBA allows for a rich menu of banks’ decisions, contingent on banks’ balance sheet and capital position, including dividend payment rules, credit expansion, and dynamic balance sheet adjustment via risk-weight optimization. The platform serves to illustrate the effect of changes on regulatory requirements on solvency, liquidity, and interconnectedness risk. It could also constitute a basic building block for further development of large, bottom-up agent-based macro-financial models.

Interbank Tiering and Money Center Banks

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ISBN 13 :
Total Pages : 50 pages
Book Rating : 4.3/5 ( download)

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Book Synopsis Interbank Tiering and Money Center Banks by : Ben Craig

Download or read book Interbank Tiering and Money Center Banks written by Ben Craig and published by . This book was released on 2010 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: