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Interbank Lending and Systemic Risk: An Empirical Analysis for Switzerland

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  • George Sheldon
  • Martin Maurer
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    Abstract

    Systemic risk in banking has gained renewed prominence in the literature in recent years. To date, empirical studies aimed at assessing the quantitative importance of systemic risk have analyzed the outcomes of historical banking crises. This paper takes a new tack by attempting to assess the level of systemic risk currently in a banking system on the basis of interbank loan structures. We construct a matrix of interbank loans for Switzerland based on known marginal loan distributions and the principle of entropy maximization. Our results suggest that the latent systemic risk associated with the interbank loan structure existing among Swiss banks in 1987-95 posed little threat to the stability of the Swiss banking system.

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    Bibliographic Info

    Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

    Volume (Year): 134 (1998)
    Issue (Month): IV (December)
    Pages: 685-704

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    Handle: RePEc:ses:arsjes:1998-iv-20

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