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Bank networks : contagion, systemic risk and prudential policy
- We present a network model of the interbank market in which optimizing risk averse banks lend to each other and invest in non-liquid assets. Market clearing takes place through a tâtonnement process which yields the equilibrium price, while traded quantities are determined by means of a matching algorithm. We compare three alternative matching algorithms: maximum entropy, closest matching and random matching. Contagion occurs through liquidity hoarding, interbank interlinkages and fire sale externalities. The resulting network configurations exhibits a core-periphery structure, dis-assortative behavior and low clustering coefficient. We measure systemic importance by means of network centrality and input-output metrics and the contribution of systemic risk by means of Shapley values. Within this framework we analyze the effects of prudential policies on the stability/efficiency trade-off. Liquidity requirements unequivocally decrease systemic risk but at the cost of lower efficiency (measured by aggregate investment in non-liquid assets); equity requirements tend to reduce risk (hence increase stability) without reducing significantly overall investment.
Author: | Iñaki Aldasoro, Domenico Delli GattiORCiDGND, Ester FaiaGND |
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URN: | urn:nbn:de:hebis:30:3-371190 |
URL: | http://ssrn.com/abstract=2572877 |
Parent Title (English): | SAFE working paper series ; No. 87 |
Series (Serial Number): | SAFE working paper (87) |
Publisher: | SAFE |
Place of publication: | Frankfurt am Main |
Document Type: | Working Paper |
Language: | English |
Date of Publication (online): | 2015/03/05 |
Year of first Publication: | 2015 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2015/03/10 |
Tag: | banking networks; centrality metrics; contagion; fire sales; prudential regulation; systemic risk |
Issue: | January 2015 |
Page Number: | 53 |
HeBIS-PPN: | 357671457 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |