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Quantifying the importance of different contagion channels as sources of systemic risk

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  • Christoph Siebenbrunner

    (University of Oxford)

Abstract

A framework that allows computing contagion effects from both direct exposure contagion and overlapping portfolios is presented. The effects of the latter are broken down into loss correlation, effects from fire sales and mark-to-market accounting. The impact can be quantified for any single contagion channel as well as when multiple channels are jointly active. The model can be used to compute contagion losses that are consistent with a given macroeconomic scenario and thus provides a macroprudential extension for microprudential stress tests. Empirical results for a real-world banking system suggest that contagion effects stemming from direct exposures have the highest loss contribution.

Suggested Citation

  • Christoph Siebenbrunner, 2021. "Quantifying the importance of different contagion channels as sources of systemic risk," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(1), pages 103-131, January.
    • Handle: RePEc:spr:jeicoo:v:16:y:2021:i:1:d:10.1007_s11403-020-00286-2
    DOI: 10.1007/s11403-020-00286-2
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    2. Yan, Chun & Ding, Yi & Liu, Wei & Liu, Xinhong & Liu, Jiahui, 2023. "Multilayer interbank networks and systemic risk propagation: Evidence from China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 628(C).

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    More about this item

    Keywords

    Systemic risk; Financial contagion; Stress testing;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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