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Banks connectivity, credit risk transfer and stability of the banking system

Author

Listed:
  • Julien Barré

    (JAD - Laboratoire Jean Alexandre Dieudonné - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique)

  • Alain Raybaut

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique)

  • Dominique Torre

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique)

Abstract

Our dynamic model captures the network relations generated by credit risk transfer andsecuritization. Each bank determines its own level of risk according to fundamentals and the levelof risk of its environment, given the possibilities opened by credit risk transfer. The dynamics ofthe model is generated by the network structure of the interbank relations. A highly connectednetwork generates forces able to make the long term equilibrium of the bank industry dependanton initial conditions. Irregularity in the network can also explain that a final heterogeneity appearin the final situation of banks, even when their fundamentals were originally similar.
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Suggested Citation

  • Julien Barré & Alain Raybaut & Dominique Torre, 2012. "Banks connectivity, credit risk transfer and stability of the banking system," Post-Print hal-00640936, HAL.
    • Handle: RePEc:hal:journl:hal-00640936
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    References listed on IDEAS

    as
    1. Morten Bech & James Chapman & Rod Garratt, 2008. "Which Bank is the "Central" Bank? An Application of Markov Theory to the Canadian Large Value Transfer System," Staff Working Papers 08-42, Bank of Canada.
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    4. Battiston, Stefano & Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2012. "Liaisons dangereuses: Increasing connectivity, risk sharing, and systemic risk," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1121-1141.
    5. Allen, Franklin & Carletti, Elena, 2006. "Credit risk transfer and contagion," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 89-111, January.
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    7. Boissay, Frédéric, 2006. "Credit chains and the propagation of financial distress," Working Paper Series 573, European Central Bank.
    8. Bech, Morten L. & Chapman, James T.E. & Garratt, Rodney J., 2010. "Which bank is the "central" bank?," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 352-363, April.
    9. Ana Babus, 2006. "Contagion Risk in Financial Networks," Chapters, in: Klaus Liebscher & Josef Christl & Peter Mooslechner & Doris Ritzberger-Grünwald (ed.), Financial Development, Integration and Stability, chapter 23, Edward Elgar Publishing.
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    Cited by:

    1. Alain Raybaut, 2018. "Coupling and synchronization dynamics in endogenous business cycles models," Post-Print halshs-01941339, HAL.
    2. Giampaolo Gabbi & Alesia Kalbaska & Alessandro Vercelli, 2014. "Factors generating and transmitting the financial crisis: The role of incentives: securitization and contagion," Working papers wpaper56, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

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    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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