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Assessing Interbank Contagion Risk Using Consolidated Data

Author

Listed:
  • Xiaojun Li

    (Shanghai University of International Business and Economics)

  • Shijun Dong

    (Shanghai Lixin University of Accounting and Finance)

Abstract

This study uses the maximum entropy method to estimate bilateral interbank exposure in order to simulate the contagion effect in the UK interbank market using consolidated data. Almost all existing studies use unconsolidated data, which could significantly distort the real contagion effect as the banking sectors of most countries are highly concentrated with most large banks owning a significant number of subsidiaries. The results show that exposure is much more severe using consolidated data, implying that some money center banks or systematically important banks were underestimated by the contagion model before the 2008 financial crisis.

Suggested Citation

  • Xiaojun Li & Shijun Dong, 2016. "Assessing Interbank Contagion Risk Using Consolidated Data," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(4), pages 421-432, November.
    • Handle: RePEc:kap:iaecre:v:22:y:2016:i:4:d:10.1007_s11294-016-9600-1
    DOI: 10.1007/s11294-016-9600-1
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    References listed on IDEAS

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