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Interbank Lending and Systemic Risk: An Empirical Analysis for Switzerland

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Author Info
George Sheldon
Martin Maurer
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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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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  1. Simon Wells, . "Financial interlinkages in the United Kingdom's interbank market and the risk of contagion," Bank of England working papers 230, Bank of England. [Downloadable!]
  2. Christian Upper & Andreas Worms, 2001. "Do institutional safeguards limit the danger of contagion in the German interbank market?," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 577-591.
  3. Lelyveld, Iman van & Liedorp, Franka, 2004. "Interbank Contagion in the Dutch Banking Sector," MPRA Paper 651, University Library of Munich, Germany, revised 11 Jul 2005. [Downloadable!]
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  4. Schüler , Martin, 2002. "The threat of systemic risk in banking : evidence for Europe," ZEW Discussion Papers 02-21, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  5. Kares, Alexei & Schoors , Koen & Lanine, Gleb, 2008. "Liquidity matters: Evidence from the Russian interbank market," BOFIT Discussion Papers 19/2008, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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  6. Reint Gropp & Marco Lo Duca & Jukka Vesala, 2006. "Cross-border bank contagion in Europe," Working Paper Series 662, European Central Bank. [Downloadable!]
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  7. Schüler , Martin & Schröder, Michael, 2003. "Systemic Risk in European Banking : Evidence from Bivariate GARCH Models," ZEW Discussion Papers 03-11, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  8. Iman van Lelyveld & Franka Liedorp, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May. [Downloadable!]
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  9. Rodrigo Cifuentes & Gianluigi Ferrucci & Hyun Song Shin, . "Liquidity risk and contagion," Bank of England working papers 264, Bank of England. [Downloadable!]
  10. Paolo Emilio Mistrulli, 2007. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Temi di discussione (Economic working papers) 641, Bank of Italy, Economic Research Department. [Downloadable!]
  11. Schüler , Martin, 2003. "How Do Banking Supervisors Deal with Europe-wide Systemic Risk?," ZEW Discussion Papers 03-03, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  12. Toivanen, Mervi, 2009. "Financial interlinkages and risk of contagion in the Finnish interbank market," Research Discussion Papers 6/2009, Bank of Finland. [Downloadable!]
  13. Peter Galos & Kimmo Soramäki, 2005. "Systemic risk in alternative payment system designs," Working Paper Series 508, European Central Bank. [Downloadable!]
  14. Jeannette Müller, 2006. "Interbank Credit Lines as a Channel of Contagion," Journal of Financial Services Research, Springer, vol. 29(1), pages 37-60, February. [Downloadable!] (restricted)
  15. Degryse, H.A. & Nguyen, G., 2004. "Interbank exposures : an empirical examination of systemic risk in the Belgian banking system," Discussion Paper 4, Tilburg University, Center for Economic Research. [Downloadable!]
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  16. Ana Babus, 2007. "The Formation of Financial Networks," Working Papers 2007.69, Fondazione Eni Enrico Mattei. [Downloadable!]
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