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Interbank Contagion in the Dutch Banking Sector

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  • Iman van Lelyveld
  • Franka Liedorp

Abstract

We investigate interlinkages and contagion risks in the Dutch interbank market. Based on severaldata sources, including the answers of banks to a questionnaire, we estimate the exposures in the interbank market at bank level. Next, we perform a scenario analysis to measure contagion risks. We find that the bankruptcy of one of the large banks will put a considerable burden on the other banks, but will not lead to a complete collapse of the interbank market. The contagion effects of the failure of a smaller bank are limited. The exposures to foreign counterparties are large and warrant further research.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 005.

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Date of creation: Jul 2004
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Handle: RePEc:dnb:dnbwpp:005

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Keywords: interbank market; contagion; simulation;

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  1. Franklin Allen & Douglas Gale, 1998. "Financial Contagion Journal of Political Economy," Center for Financial Institutions Working Papers 98-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  3. Amil Dasgupta, 2004. "Financial Contagion Through Capital Connections: A Model of the Origin and Spread of Bank Panics," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1049-1084, December.
  4. C. H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," BIS Working Papers 70, Bank for International Settlements.
  5. James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, vol. 46(4), pages 1223-42, September.
  6. Simon Wells, 2004. "Financial interlinkages in the United Kingdom's interbank market and the risk of contagion," Bank of England working papers 230, Bank of England.
  7. 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.
  8. de Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic Risk: A Survey," CEPR Discussion Papers 2634, C.E.P.R. Discussion Papers.
  9. Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
  10. George Sheldon & Martin Maurer, 1998. "Interbank Lending and Systemic Risk: An Empirical Analysis for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(IV), pages 685-704, December.
  11. Helmut Elsinger & Alfred Lehar & Martin Summer, 2002. "Risk Assessment for Banking Systems," Working Papers 79, Oesterreichische Nationalbank (Austrian Central Bank).
  12. Franklin Allen & Douglas Gale, 2003. "Financial Fragility, Liquidity and Asset Prices," Center for Financial Institutions Working Papers 01-37, Wharton School Center for Financial Institutions, University of Pennsylvania.
  13. Degryse, H.A. & Nguyen, G., 2004. "Interbank Exposures: An Empirical Examination of Systemic Risk in the Belgian Banking System," Discussion Paper 2004-4, Tilburg University, Center for Economic Research.
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