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Transmission of distress in a bank credit network

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  • Yoshiharu Maeno
  • Satoshi Morinaga
  • Hirokazu Matsushima
  • Kenichi Amagai
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    Abstract

    The European sovereign debt crisis has impaired many European banks. The distress on the European banks may transmit worldwide, and result in a large-scale knock-on default of financial institutions. This study presents a computer simulation model to analyze the risk of insolvency of banks and defaults in a bank credit network. Simulation experiments reproduce the knock-on default, and quantify the impact which is imposed on the number of bank defaults by heterogeneity of the bank credit network, the equity capital ratio of banks, and the capital surcharge on big banks.

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    File URL: http://arxiv.org/pdf/1204.5661
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1204.5661.

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    Date of creation: Apr 2012
    Date of revision: Nov 2012
    Publication status: Published in presented at the 4th World Congress on Social Simulation, Taipei, September 2012
    Handle: RePEc:arx:papers:1204.5661

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    Web page: http://arxiv.org/

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    1. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2008. "Network models and financial stability," Bank of England working papers 346, Bank of England.
    2. Upper, Christian, 2011. "Simulation methods to assess the danger of contagion in interbank markets," Journal of Financial Stability, Elsevier, vol. 7(3), pages 111-125, August.
    3. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2006. "Business fluctuations in a credit-network economy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 370(1), pages 68-74.
    4. 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.
    5. Maeno, Yoshiharu, 2010. "Discovering network behind infectious disease outbreak," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4755-4768.
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