Contagion in financial networks: A threat index
AbstractAn intricate web of claims and obligations ties together the balance sheets of a wide variety of financial institutions. Under the occurrence of default, these interbank claims generate externalities across institutions and possibly disseminate defaults and bankruptcy. Building on a simple model for the joint determination of the repayments of interbank claims, this paper introduces a measure of the threat that a bank poses to the system. Such a measure, called threat index, may be helpful to determine how to inject cash into banks so as to increase debt reimbursement, or to assess the contributions of individual institutions to the risk in the system. Although the threat index and the default level of a bank both reflect some form of weakness and are affected by the whole liability network, the two indicators differ. As a result, injecting cash into the banks with the largest default level may not be optimal.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8793.
Date of creation: Feb 2012
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-BAN-2012-03-28 (Banking)
- NEP-CBA-2012-03-28 (Central Banking)
- NEP-NET-2012-03-28 (Network Economics)
- NEP-RMG-2012-03-28 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xavier Freixas & Bruno Parigi & Jean Charles Rochet, 1998.
"Systemic risk, interbank relations and liquidity provision by the Central Bank,"
Economics Working Papers
440, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 1999.
- Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-38, August.
- Xavier Freixas & Bruno M. Parigi & Jean-Charles Rochet, 2000. "Systemic risk, interbank relations, and liquidity provision by the central bank," Proceedings, Federal Reserve Bank of Cleveland, pages 611-640.
- Freixas, Xavier & Parigi, Bruno & Rochet, Jean Charles, 1999. "Systemic Risk, Interbank Relations and Liquidity Provision by the Central Bank," CEPR Discussion Papers 2325, C.E.P.R. Discussion Papers.
- X. Freixas & B. Parigi & J-C. Rochet, 2000. "Systemic Risk, Interbank Relations and Liquidity Provision by theCentral Bank," DNB Staff Reports (discontinued) 47, Netherlands Central Bank.
- Upper, Christian & Worms, Andreas, 2002.
"Estimating Bilateral Exposures in the German Interbank Market: Is there a Danger of Contagion?,"
Discussion Paper Series 1: Economic Studies
2002,09, Deutsche Bundesbank, Research Centre.
- Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, vol. 48(4), pages 827-849, August.
- Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
- Helmut Elsinger & Alfred Lehar & Martin Summer, 2006.
"Risk Assessment for Banking Systems,"
INFORMS, vol. 52(9), pages 1301-1314, September.
- Shin, Hyun Song, 2008. "Risk and liquidity in a system context," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 315-329, July.
- Gai, Prasanna & Kapadia, Sujit, 2010. "Contagion in financial networks," Bank of England working papers 383, Bank of England.
- Coralio Ballester & Antoni Calvo-Armengol & Yves Zenou, 2005.
"Who's Who in Networks. Wanted: the Key Player,"
NajEcon Working Paper Reviews
- Coralio Ballester & Antoni Calvó-Armengol & Yves Zenou, 2004. "Who's Who in Networks. Wanted: The Key Player," Working Papers 178, Barcelona Graduate School of Economics.
- Ballester, Coralio & Calvó-Armengol, Antoni & Zenou, Yves, 2005. "Who’s Who in Networks. Wanted: The Key Player," CEPR Discussion Papers 5329, C.E.P.R. Discussion Papers.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2010. "Attributing systemic risk to individual institutions," BIS Working Papers 308, Bank for International Settlements.
- Leo Katz, 1953. "A new status index derived from sociometric analysis," Psychometrika, Springer, vol. 18(1), pages 39-43, March.
- Christian Gouriéroux & Jean-Cyprien Heam & Alain Monfort, 2013.
"Liquidation Equilibrium with Seniority and Hidden CDO,"
2013-06, Centre de Recherche en Economie et Statistique.
- Gourieroux, C. & Heam, J.C. & Monfort, A., 2013. "Liquidation equilibrium with seniority and hidden CDO," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5261-5274.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.