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A Network model of systemic risk: identifying the sources of dependence across institutions

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  • Carlos Castro

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  • Juan Sebastian Ordoñez

    ()

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    Abstract

    Abstract: We design a financial network model that explicitly incorporates linkages across institutions through a direct contagion channel, as well as an indirect common exposure channel. In particular, common exposure is setup so as to link the fi nancial to the real sector. The model is calibrated to balance sheet data on the colombian fi nancial sector. Results indicate that commercial banks are the most systemically important financial institutions in the system. Whereas government owned institutions are the most vulnerable institutions in the system.

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    File URL: http://www.urosario.edu.co/urosario_files/de/de1a36dd-b978-493b-acda-9f9435498b57.pdf
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    Bibliographic Info

    Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 009651.

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    Length: 26
    Date of creation: 12 Jun 2012
    Date of revision:
    Handle: RePEc:col:000092:009651

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    Keywords: systemic risk; network models; contagion; common exposure;

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    1. Elsinger, Helmut & Lehar, Alfred & Summer, Martin, 2005. "Using Market Information for Banking System Risk Assessment," MPRA Paper 817, University Library of Munich, Germany.
    2. Carlos León & Clara Machado & Freddy cepeda & Miguel Sarmiento, 2011. "Too-connected-to-fail Institutions and Payments System´s Stability: Assessing Challenges for Financial Authorities," BORRADORES DE ECONOMIA 008155, BANCO DE LA REPÚBLICA.
    3. Galbiati, Marco & Soramäki, Kimmo, 2011. "An agent-based model of payment systems," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 859-875, June.
    4. Daniel O. Cajueiro & Benjamin M. Tabak, 2007. "The role of banks in the Brazilian Interbank Market: Does bank type matter?," Working Papers Series 130, Central Bank of Brazil, Research Department.
    5. Edson Bastos e Santos & Rama Cont, 2010. "The Brazilian Interbank Network Structure and Systemic Risk," Working Papers Series 219, Central Bank of Brazil, Research Department.
    6. Hans Degryse & Grégory Nguyen, 2007. "Interbank Exposures: An Empirical Examination of Contagion Risk in the Belgian Banking System," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 123-171, June.
    7. Michael Boss & Helmut Elsinger & Martin Summer & Stefan Thurner, 2004. "Network topology of the interbank market," Quantitative Finance, Taylor & Francis Journals, vol. 4(6), pages 677-684.
    8. Clara Lia Machado & Carlos León & Miguel Sarmiento & Orlando Chipatecua, 2010. "Riesgo Sistémico y Estabilidad del Sistema de Pagos de Alto Valor en Colombia: Análisis bajo Topología de Redes y Simulación de Pagos," BORRADORES DE ECONOMIA 007669, BANCO DE LA REPÚBLICA.
    9. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007. "Network models and financial stability," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2033-2060, June.
    10. Juan Sole & Marco A Espinosa-Vega, 2010. "Cross-Border Financial Surveillance," IMF Working Papers 10/105, International Monetary Fund.
    11. Becher, Christopher & Millard, Stephen & Soramäki, Kimmo, 2008. "The network topology of CHAPS Sterling," Bank of England working papers 355, Bank of England.
    12. Jorge A. Chan-Lau, 2010. "Balance Sheet Network Analysis of too-Connected-To-Fail Risk in Global and Domestic Banking Systems," IMF Working Papers 10/107, International Monetary Fund.
    13. Kavonius, Ilja Kristian & Castrén, Olli, 2009. "Balance Sheet Interlinkages and Macro-Financial Risk Analysis in the Euro Area," Working Paper Series 1124, European Central Bank.
    14. Jorge A. Chan-Lau, 2010. "Regulatory Capital Charges for too-Connected-To-Fail Institutions," IMF Working Papers 10/98, International Monetary Fund.
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