Endogenous banks' networks, cascades and systemic risk : [draft: march 2013]

  • We develop a dynamic 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 firesales: risk is transmitted through direct and cascading counterparty defaults as well as through indirect pecuniary externalities triggered by firesales. 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.

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Author:Marcel Bluhm, Ester FaiaGND, Jan Pieter KrahnenORCiDGND
Parent Title (German):SAFE working paper series ; No. 12
Series (Serial Number):SAFE working paper (12)
Publisher:Goethe-Univ., House of Finance, Sustainable Architecture for Finance in Europe, SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2013
Year of first Publication:2013
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2013/04/19
Tag:contagion; network formation; tâtonnement
Issue:draft: march 2013
Page Number:78
First draft: March 2011. This draft: March 2013.
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht