Systemic Risk In Endogenous Financial Networks

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Systemic Risk in Endogenous Financial Networks

Author : Daron Acemoglu
Publisher :
ISBN 13 :
Total Pages : 29 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Systemic Risk in Endogenous Financial Networks by : Daron Acemoglu

Download or read book Systemic Risk in Endogenous Financial Networks written by Daron Acemoglu and published by . This book was released on 2015 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a framework to study the formation of financial networks and investigate the interplay between banks' lending incentives and the emergence of systemic risk. We show that under natural contracting assumptions, banks fail to internalize the implications of their lending decisions for the banks with whom they are not directly contracting, thus establishing the presence of a financial network externality in the process of network formation. We then illustrate how the presence of this externality can function as a channel for the emergence of systemic risk. In particular, we show that (i) banks may "overlend" in equilibrium, creating channels over which idiosyncratic shocks can translate into systemic crises via financial contagion; and (ii) they may not spread their lending sufficiently among the set of potential borrowers, creating insufficiently connected financial networks that are excessively prone to contagious defaults. Finally, we show that banks' private incentives may lead to the formation of financial networks that are overly susceptible to systemic meltdowns with some small probability.

Systemic Risk and the Dynamics of Financial Networks

Author : Rui Gong
Publisher :
ISBN 13 :
Total Pages : 42 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Systemic Risk and the Dynamics of Financial Networks by : Rui Gong

Download or read book Systemic Risk and the Dynamics of Financial Networks written by Rui Gong and published by . This book was released on 2016 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper has two main objectives: first, to provide a formal definition of endogenous systemic risk that is firmly grounded in equilibrium dynamics of financial networks; and second, to construct a discounted stochastic game (DSG) model of the emergence of equilibrium network dynamics that fully takes into account the feedback between network structure, strategic behavior, and risk. Based on our definition of systemic risk we also propose a formal definition of tipping points. Using these tools we then provide a strategic approach to making global assessments of systemic risk in financial networks. Our approach is based on three key facts: (1) the equilibrium dynamics which emerge from the game of network formation generate finitely many disjoint basins of attraction as well as finitely many ergodic measures (implying that, starting from any financial network, in finite time with probability one, the dynamic sequence of financial networks arrives at one of these basins and once there stays there), (2) each basin of attraction is homogenous with respect to its default characteristics (meaning that if a basin contains states having a particular set of defaulted players, then all states contained in this basin have the same set of defaulted players), and (3) the unique profile of basins generated by the equilibrium dynamics carries with it a unique set of tipping points (special states) - and these tipping points provide an early warning of network failure.

Quantifying Systemic Risk

Author : Joseph G. Haubrich
Publisher : University of Chicago Press
ISBN 13 : 0226921964
Total Pages : 286 pages
Book Rating : 4.2/5 (269 download)

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Book Synopsis Quantifying Systemic Risk by : Joseph G. Haubrich

Download or read book Quantifying Systemic Risk written by Joseph G. Haubrich and published by University of Chicago Press. This book was released on 2013-01-24 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the aftermath of the recent financial crisis, the federal government has pursued significant regulatory reforms, including proposals to measure and monitor systemic risk. However, there is much debate about how this might be accomplished quantitatively and objectively—or whether this is even possible. A key issue is determining the appropriate trade-offs between risk and reward from a policy and social welfare perspective given the potential negative impact of crises. One of the first books to address the challenges of measuring statistical risk from a system-wide persepective, Quantifying Systemic Risk looks at the means of measuring systemic risk and explores alternative approaches. Among the topics discussed are the challenges of tying regulations to specific quantitative measures, the effects of learning and adaptation on the evolution of the market, and the distinction between the shocks that start a crisis and the mechanisms that enable it to grow.

Handbook on Systemic Risk

Author : Jean-Pierre Fouque
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.

Systemic risk in financial networks

Author : Peng-Chu Chen
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (14 download)

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Book Synopsis Systemic risk in financial networks by : Peng-Chu Chen

Download or read book Systemic risk in financial networks written by Peng-Chu Chen and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Systemic Risk and Stability in Financial Networks

Author : Daron Acemoglu
Publisher :
ISBN 13 :
Total Pages : 45 pages
Book Rating : 4.:/5 (825 download)

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Book Synopsis Systemic Risk and Stability in Financial Networks by : Daron Acemoglu

Download or read book Systemic Risk and Stability in Financial Networks written by Daron Acemoglu and published by . This book was released on 2013 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a framework for studying the relationship between the financial network architecture and the likelihood of systemic failures due to contagion of counterparty risk. We show that financial contagion exhibits a form of phase transition as interbank connections increase: as long as the magnitude and the number of negative shocks affecting financial institutions are sufficiently small, more "complete" interbank claims enhance the stability of the system. However, beyond a certain point, such interconnections start to serve as a mechanism for propagation of shocks and lead to a more fragile financial system. We also show that, under natural contracting assumptions, financial networks that emerge in equilibrium may be socially inefficient due to the presence of a network externality: even though banks take the effects of their lending, risk-taking and failure on their immediate creditors into account, they do not internalize the consequences of their actions on the rest of the network. Keywords: Contagion, counterparty risk, financial network, systemic risk. JEL Classification: G01, D85.

Systemic Risk, Contagion, and Financial Networks

Author : Matteo Chinazzi
Publisher :
ISBN 13 :
Total Pages : 57 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Systemic Risk, Contagion, and Financial Networks by : Matteo Chinazzi

Download or read book Systemic Risk, Contagion, and Financial Networks written by Matteo Chinazzi and published by . This book was released on 2015 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent crisis has highlighted the crucial role that existing linkages among banks and financial institutions plays in channeling and amplifying shocks hitting the system. The structure and evolution of such web of linkages can be fruitfully characterized using concepts borrowed from the theory of (complex) networks. This paper critically surveys recent theoretical work that exploits this concept to explain the sources of contagion and systemic risk in financial markets. We taxonomize existing contributions according to the impact of network connectivity, bank heterogeneity, existing uncertainty in financial markets, portfolio composition of the banks. We end with a discussion of the most important challenges faced by theoretical network-based models of systemic risk. These include a better understanding of the causal links between network structure and the likelihood of systemic risk and increasingly using the empirical knowledge about real-world financial-network structures to calibrate theoretical models.

Systemic Risk Modeling: How Theory Can Meet Statistics

Author : Mr.Raphael A Espinoza
Publisher : International Monetary Fund
ISBN 13 : 1513536176
Total Pages : 39 pages
Book Rating : 4.5/5 (135 download)

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Book Synopsis Systemic Risk Modeling: How Theory Can Meet Statistics by : Mr.Raphael A Espinoza

Download or read book Systemic Risk Modeling: How Theory Can Meet Statistics written by Mr.Raphael A Espinoza and published by International Monetary Fund. This book was released on 2020-03-13 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a framework to link empirical models of systemic risk to theoretical network/ general equilibrium models used to understand the channels of transmission of systemic risk. The theoretical model allows for systemic risk due to interbank counterparty risk, common asset exposures/fire sales, and a “Minsky" cycle of optimism. The empirical model uses stock market and CDS spreads data to estimate a multivariate density of equity returns and to compute the expected equity return for each bank, conditional on a bad macro-outcome. Theses “cross-sectional" moments are used to re-calibrate the theoretical model and estimate the importance of the Minsky cycle of optimism in driving systemic risk.

Systemic Risk and the Dynamics of Temporary Financial Networks

Author :
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (128 download)

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Book Synopsis Systemic Risk and the Dynamics of Temporary Financial Networks by :

Download or read book Systemic Risk and the Dynamics of Temporary Financial Networks written by and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Endogenous Banks' Networks, Cascades and Systemic Risk

Author : Marcel Bluhm
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (115 download)

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Book Synopsis Endogenous Banks' Networks, Cascades and Systemic Risk by : Marcel Bluhm

Download or read book Endogenous Banks' Networks, Cascades and Systemic Risk written by Marcel Bluhm and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a network model whose links are governed by banks' optmizing decisions and by an endogenous tâtonnement market adjustment. Banks in our model can default and engage in re-sales: risk is transmitted through direct and cascading counterparty defaults as well as through indirect pecuniary externalities triggered by re-sales. We use the model to assess the evolution of the network configuration under various prudential policy regimes, to measure banks' contribution to systemic risk (through Shapley values) in response to shocks, and to analyze the effects of systemic risk charges. We complement the analysis by introducing the possibility of central bank liquidity provision.

Systemic Risk

Author : Prasanna Gai
Publisher : OUP Oxford
ISBN 13 : 019165406X
Total Pages : 147 pages
Book Rating : 4.1/5 (916 download)

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Book Synopsis Systemic Risk by : Prasanna Gai

Download or read book Systemic Risk written by Prasanna Gai and published by OUP Oxford. This book was released on 2013-03-28 with total page 147 pages. Available in PDF, EPUB and Kindle. Book excerpt: Systemic Risk opens new ground in the study of financial crises. It treats the financial system as a complex adaptive system and shows how lessons from network disciplines - such as ecology, epidemiology, and statistical mechanics - shed light on our understanding of financial stability. Using tools from network theory and economics, it suggests that financial systems are robust-yet-fragile, with knife-edge properties that are greatly exacerbated by the hoarding of funds and the fire sale of assets by banks. This book studies the damaging network consequences of the failure of large inter-connected institutions, explains how key funding markets can seize up across the entire financial system, and shows how the pursuit of secured finance by banks in the wake of the global financial crisis can generate systemic risks. The insights are then used to model banking systems calibrated to data to illustrate how financial sector regulators are beginning to quantify financial system stress.

Systemic Risk from Global Financial Derivatives

Author : Ms.Sheri M. Markose
Publisher : International Monetary Fund
ISBN 13 : 1475577508
Total Pages : 58 pages
Book Rating : 4.4/5 (755 download)

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Book Synopsis Systemic Risk from Global Financial Derivatives by : Ms.Sheri M. Markose

Download or read book Systemic Risk from Global Financial Derivatives written by Ms.Sheri M. Markose and published by International Monetary Fund. This book was released on 2012-11-30 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial network analysis is used to provide firm level bottom-up holistic visualizations of interconnections of financial obligations in global OTC derivatives markets. This helps to identify Systemically Important Financial Intermediaries (SIFIs), analyse the nature of contagion propagation, and also monitor and design ways of increasing robustness in the network. Based on 2009 FDIC and individually collected firm level data covering gross notional, gross positive (negative) fair value and the netted derivatives assets and liabilities for 202 financial firms which includes 20 SIFIs, the bilateral flows are empirically calibrated to reflect data-based constraints. This produces a tiered network with a distinct highly clustered central core of 12 SIFIs that account for 78 percent of all bilateral exposures and a large number of financial intermediaries (FIs) on the periphery. The topology of the network results in the “Too- Interconnected-To-Fail” (TITF) phenomenon in that the failure of any member of the central tier will bring down other members with the contagion coming to an abrupt end when the ‘super-spreaders’ have demised. As these SIFIs account for the bulk of capital in the system, ipso facto no bank among the top tier can be allowed to fail, highlighting the untenable implicit socialized guarantees needed for these markets to operate at their current levels. Systemic risk costs of highly connected SIFIs nodes are not priced into their holding of capital or collateral. An eigenvector centrality based ‘super-spreader’ tax has been designed and tested for its capacity to reduce the potential socialized losses from failure of SIFIs.

The Oxford Handbook of the Economics of Networks

Author : Yann Bramoullé
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.

Measuring Systemic Risk-Adjusted Liquidity (SRL)

Author : Andreas Jobst
Publisher : International Monetary Fund
ISBN 13 : 1475505590
Total Pages : 70 pages
Book Rating : 4.4/5 (755 download)

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Book Synopsis Measuring Systemic Risk-Adjusted Liquidity (SRL) by : Andreas Jobst

Download or read book Measuring Systemic Risk-Adjusted Liquidity (SRL) written by Andreas Jobst and published by International Monetary Fund. This book was released on 2012-08-01 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: Little progress has been made so far in addressing—in a comprehensive way—the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines option pricing with market information and balance sheet data to generate a probabilistic measure of the frequency and severity of multiple entities experiencing a joint liquidity event. It links a firm’s maturity mismatch between assets and liabilities impacting the stability of its funding with those characteristics of other firms, subject to individual changes in risk profiles and common changes in market conditions. This approach can then be used (i) to quantify an individual institution’s time-varying contribution to system-wide liquidity shortfalls and (ii) to price liquidity risk within a macroprudential framework that, if used to motivate a capital charge or insurance premia, provides incentives for liquidity managers to internalize the systemic risk of their decisions. The model can also accommodate a stress testing approach for institution-specific and/or general funding shocks that generate estimates of systemic liquidity risk (and associated charges) under adverse scenarios.

Complex Financial Networks and Systemic Risk

Author : Spiros P. Bougheas
Publisher :
ISBN 13 :
Total Pages : 22 pages
Book Rating : 4.:/5 (877 download)

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Book Synopsis Complex Financial Networks and Systemic Risk by : Spiros P. Bougheas

Download or read book Complex Financial Networks and Systemic Risk written by Spiros P. Bougheas and published by . This book was released on 2014 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Systemic Risk, Crises, and Macroprudential Regulation

Author : Xavier Freixas
Publisher : MIT Press
ISBN 13 : 0262028697
Total Pages : 487 pages
Book Rating : 4.2/5 (62 download)

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Book Synopsis Systemic Risk, Crises, and Macroprudential Regulation by : Xavier Freixas

Download or read book Systemic Risk, Crises, and Macroprudential Regulation written by Xavier Freixas and published by MIT Press. This book was released on 2015-06-19 with total page 487 pages. Available in PDF, EPUB and Kindle. Book excerpt: A framework for macroprudential regulation that defines systemic risk and macroprudential policy, describes macroprudential tools, and surveys the effectiveness of existing macroprudential regulation. The recent financial crisis has shattered all standard approaches to banking regulation. Regulators now recognize that banking regulation cannot be simply based on individual financial institutions' risks. Instead, systemic risk and macroprudential regulation have come to the forefront of the new regulatory paradigm. Yet our knowledge of these two core aspects of regulation is still limited and fragmented. This book offers a framework for understanding the reasons for the regulatory shift from a microprudential to a macroprudential approach to financial regulation. It defines systemic risk and macroprudential policy, cutting through the generalized confusion as to their meaning; contrasts macroprudential to microprudential approaches; discusses the interaction of macroprudential policy with macroeconomic policy (monetary policy in particular); and describes macroprudential tools and experiences with macroprudential regulation around the world. The book also considers the remaining challenges for establishing effective macroprudential policy and broader issues in regulatory reform. These include the optimal size and structure of the financial system, the multiplicity of regulatory bodies in the United States, the supervision of cross-border financial institutions, and the need for international cooperation on macroprudential policies.

Systemic Risk in Financial Networks

Author : Larry Eisenberg
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Systemic Risk in Financial Networks by : Larry Eisenberg

Download or read book Systemic Risk in Financial Networks written by Larry Eisenberg and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider default by firms that are part of a single clearing mechanism. The obligations of all firms within the system are determined simultaneously in a fashion consistent with the priority of debt claims and the limited liability of equity. We first show, via a fixed-point argument, that there always exists a clearing payment vector that clears the obligations of the members of the clearing system; under mild regularity conditions, this clearing vector is unique. Next, we develop an algorithm that both clears the financial network in a computationally efficient fashion and provides information on the systemic risk faced by individual system firms. Finally, we produce qualitative comparative statics for financial networks. These comparative statics imply that, in contrast to single-firm results, unsystematic, nondissipative shocks to the system will lower the total value of the network and may lower the value of the equity of some of the individual network firms.