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Looking for grass-root sources of systemic risk: the case of "cheques-as-collateral" network

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  • Michalis Vafopoulos
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    Abstract

    The global financial system has become highly connected and complex. Has been proven in practice that existing models, measures and reports of financial risk fail to capture some important systemic dimensions. Only lately, advisory boards have been established in high level and regulations are directly targeted to systemic risk. In the same direction, a growing number of researchers employ network analysis to model systemic risk in financial networks. Current approaches are concentrated on interbank payment network flows in national and international level. This work builds on existing approaches to account for systemic risk assessment in micro level. Particularly, we introduce the analysis of intra-bank financial risk interconnections, by examining the real case of "cheques-as-collateral" network for a major Greek bank. Our model offers useful information about the negative spillovers of disruption to a financial entity in a bank's lending network and could complement existing credit scoring models that account only for idiosyncratic customer's financial profile. Most importantly, the proposed methodology can be employed in many segments of the entire financial system, providing a useful tool in the hands of regulatory authorities in assessing more accurate estimates of systemic risk.

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    File URL: http://arxiv.org/pdf/1112.1156
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1112.1156.

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    Date of creation: Dec 2011
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    Handle: RePEc:arx:papers:1112.1156

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    Web page: http://arxiv.org/

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    1. Kimmo Soramaki & Morten L. Bech & Jeffrey Arnold & Robert J. Glass & Walter Beyeler, 2006. "The topology of interbank payment flows," Staff Reports 243, Federal Reserve Bank of New York.
    2. repec:cty:dpaper:0505 is not listed on IDEAS
    3. Iori, G. & Masi, G. D. & Precup, O. V. & Gabbi, G. & Caldarelli, G., 2005. "A network analysis of the Italian oversight money market," Working Papers 05/05, Department of Economics, City University London.
    4. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2008. "Network models and financial stability," Bank of England working papers 346, Bank of England.
    5. Dorogovtsev, S.N. & Mendes, J.F.F., 2003. "Evolution of Networks: From Biological Nets to the Internet and WWW," OUP Catalogue, Oxford University Press, number 9780198515906.
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