Contagion in the Interbank Market with Stochastic Loss Given Default
AbstractThis paper investigates contagion in the German interbank market under the assumption of a stochastic loss given default (LGD). We combine a unique data set about the LGD of interbank loans with detailed data about interbank exposures. We find that the frequency distribution of the LGD is markedly U-shaped. Our simulations show that contagion in the German interbank market may happen. For the point in time under consideration, the assumption of a stochastic LGD leads on average to a more fragile banking system than under the assumption of a constant LGD.
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Bibliographic InfoArticle provided by International Journal of Central Banking in its journal International Journal of Central Banking.
Volume (Year): 8 (2012)
Issue (Month): 3 (September)
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Find related papers by JEL classification:
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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