Advanced Search
MyIDEAS: Login

Contagiousness and Vulnerability in the Austrian Interbank Market

Contents:

Author Info

  • Claus Puhr

    ()
    (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division)

  • Reinhardt Seliger

    ()
    (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division)

  • Michael Sigmund

    ()
    (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division)

Registered author(s):

    Abstract

    The purpose of this paper is to analyze (hypothetical) contagious bank defaults, i.e. defaults not caused by the fundamental weakness of a given bank but triggered by failures in the banking system. As failing banks become unable to honor their commitments on the interbank market, they may cause other banks to default, which may in turn push even more banks over the edge in so-called default cascades. In our paper we distinguish between contagiousness (the share of total banking assets represented by those banks that a specific bank brings down by contagion) and vulnerability (the number of banks by which a bank is brought down by cascading failures). Our analysis consists of three steps: first, we analyze the structure of the Austrian interbank market from end-2008 to end-2011. Second, we run (hypothetical) default simulations based on Eisenberg and Noe (2001) for the same set of banks. Finally, we estimate a panel data model to explain the (hypothetical) defaults generated by these simulations with the underlying structure of the network using network indicators that reflect (i) the network as a whole, (ii) a subnetwork or cluster, and (iii) the node level based on banks’ interbank lending relationships. As a result we find strong correlations between a bank’s position in the Austrian interbank market and its likelihood of either causing contagion or being affected by contagion. Although our analysis is based on a dataset constrained to the interbank market of unconsolidated Austrian banks, we believe our findings could be verified by analyzing other banking systems (albeit with a different model calibration). Given the importance of identifying systemically important banks for the formulation of macroprudential policy, we believe that our analysis has the potential to improve our assessment with regard to second-round effects and default cascades in the interbank market.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.oenb.at/dms/oenb/Publikationen/Finanzmarkt/Financial-Stability-Report/2012/Financial-Stability-Report-24/chapters/fsr_24_special_topics_02_tcm16-252042.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Financial Stability Report.

    Volume (Year): (2012)
    Issue (Month): 24 ()
    Pages:

    as in new window
    Handle: RePEc:onb:oenbfs:y:2012:i:24:b:2

    Contact details of provider:
    Postal: P.O. Box 61, A-1011 Vienna, Austria
    Phone: +43/1/404 20 3126
    Fax: +43/1/404 20 3199
    Email:
    Web page: http://www.oenb.at
    More information through EDIRC

    Order Information:
    Postal: Oesterreichische Nationalbank, Documentation Management and Communications Services, Otto-Wagner Platz 3, A-1090 Vienna, Austria
    Email:

    Related research

    Keywords: Interbank market; network indicators; contagion; panel analysis;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
    2. Arellano, Manuel, 1993. "On the testing of correlated effects with panel data," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 87-97, September.
    3. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, vol. 48(4), pages 827-849, August.
    4. C. H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," BIS Working Papers 70, Bank for International Settlements.
    5. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-62, November.
    6. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Risk Assessment for Banking Systems," Management Science, INFORMS, vol. 52(9), pages 1301-1314, September.
    7. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
    8. Michael Boss & Gerald Krenn & Claus Puhr & Martin Summer, 2006. "Systemic Risk Monitor: A Model for Systemic Risk Analysis and Stress Testing of Banking Systems," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 11.
    9. Piergiorgio Alessandri & Prasanna Gai & Sujit Kapadia & Nada Mora & Claus Puhr, 2009. "Towards a Framework for Quantifying Systemic Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 47-81, September.
    10. Leinonen (ed), Harry, 2009. "Simulation analyses and stress testing of payment networks," Scientific Monographs E:42/2009, Bank of Finland.
    11. Leinonen (ed), Harry, 2007. "Simulation studies of liquidity needs, risks and efficiency in payment networks," Scientific Monographs E:39/2007, Bank of Finland.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Fabio Caccioli & J. Doyne Farmer & Nick Foti & Daniel Rockmore, 2013. "How interbank lending amplifies overlapping portfolio contagion: A case study of the Austrian banking network," Papers 1306.3704, arXiv.org.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:onb:oenbfs:y:2012:i:24:b:2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stefan W. Schmitz).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.