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A risk assessment model for banks

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Author Info

  • Charles A.E. Goodhart
  • Pojanart Sunirand
  • Dimitrios P. Tsomocos

    ()

Abstract

This paper proposes a model to assess risk for banks. Its main innovation is to incorporate endogenous interaction among banks, where the actual risk an individual bank bears also depends on its interaction with other banks and investors. We develop a two-period general equilibrium model with three active heterogeneous banks, incomplete markets, and endogenous default. The model is calibrated against UK banking data and therefore can be implemented as a risk assessment tool for regulators and central banks. We address the impact of monetary and regulatory policy, credit and capital shocks in the real and financial sectors. Copyright Springer-Verlag Berlin Heidelberg 2005

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File URL: http://hdl.handle.net/10.1007/s10436-004-0006-3
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Bibliographic Info

Article provided by Springer in its journal Annals of Finance.

Volume (Year): 1 (2005)
Issue (Month): 2 (09)
Pages: 197-224

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Handle: RePEc:kap:annfin:v:1:y:2005:i:2:p:197-224

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Web page: http://www.springerlink.com/link.asp?id=112370

Related research

Keywords: Financial fragility; Financial contagion; Systemic risk; Banks; Monetary policy; Regulatory policy; Equilibrium analysis; C68; E4; E5; G11; G21;

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References

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  1. Dimitrios Tsomocos & Eva Catarineu-Rabell & Patricia Jackson, 2003. "Procyclicality and the new Basel Accord–banks’ choice of loan rating system," FMG Discussion Papers dp464, Financial Markets Group.
  2. Tsomocos, Dimitrios P., 2003. "Equilibrium analysis, banking and financial instability," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 619-655, July.
  3. Charles A.E. Goodhart & Pojanart Sunirand & Dimitrios P. Tsomocos, 2004. "A Model to Analyse Financial Fragility: Applications," OFRC Working Papers Series 2004fe05, Oxford Financial Research Centre.
  4. Martin Shubik, 2000. "The Theory of Money," Cowles Foundation Discussion Papers 1253, Cowles Foundation for Research in Economics, Yale University.
  5. Dimitrios Tsomocos & Lea Zicchino, 2005. "On Modelling Endogenous Default," FMG Discussion Papers dp548, Financial Markets Group.
  6. Dimitrios P Tsomocos & Charles A.E. Goodhart, 2003. "A Model to Analyse Financial Fragility," Economics Series Working Papers 2003-FE-13, University of Oxford, Department of Economics.
  7. Dimitrios Tsomocos, 2003. "Equilibrium Analysis, Banking, Contagion and Financial Fragility," OFRC Working Papers Series 2003fe03, Oxford Financial Research Centre.
  8. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Risk Assessment for Banking Systems," Management Science, INFORMS, vol. 52(9), pages 1301-1314, September.
  9. M. Shubik & D. Tsomocos, 1992. "A strategic market game with a mutual bank with fractional reserves and redemption in gold," Journal of Economics, Springer, vol. 55(2), pages 123-150, June.
  10. Charles Goodhart, 1989. "Money, Information and Uncertainty: 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262071223, December.
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