IDEAS home Printed from https://ideas.repec.org/p/ies/wpaper/f201705.html
   My bibliography  Save this paper

Strategic fire-sales and price-mediated contagion in the banking system

Author

Listed:
  • Yann Braouezec

    (IESEG School of Management (LEM-CNRS-UMR 9221))

  • Lakshithe Wagalath

    (IESEG School of Management (LEM-CNRS-UMR 9221))

Abstract

We consider a price-mediated contagion framework in which each bank, after an exogenous shock, may have to sell assets in order to comply with regulatory constraints. Interaction between banks takes place only through price impact. We characterize the equilibrium of the strategic deleveraging problem and we calibrate our model to publicly-available data, the US banks that were part of the 2015 regulatory stress-tests. We then consider a more sophisticated model in which each bank is exposed to two risky assets (marketable and not marketable) and is only able to sell the marketable asset. We calibrate our model using the six banks with signi˝cant trading operations and we show that, depending on the price impact, the contagion of failures may be signi˝cant. Our results may be used to re˝ne current stress testing frameworks by incorporating potential contagion mechanisms between banks

Suggested Citation

  • Yann Braouezec & Lakshithe Wagalath, 2017. "Strategic fire-sales and price-mediated contagion in the banking system," Working Papers 2017-ACF-05, IESEG School of Management, revised Aug 2018.
    • Handle: RePEc:ies:wpaper:f201705
    as

    Download full text from publisher

    File URL: https://www.ieseg.fr/wp-content/uploads/2018/11/2017-ACF-05_Braouezec-reviewed08-18.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ghamami, Samim & Glasserman, Paul & Young, Hobart, 2022. "Collateralized networks," LSE Research Online Documents on Economics 107496, London School of Economics and Political Science, LSE Library.
    2. Samim Ghamami & Paul Glasserman & H. Peyton Young, 2022. "Collateralized Networks," Management Science, INFORMS, vol. 68(3), pages 2202-2225, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ies:wpaper:f201705. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lies BOUTEN (email available below). General contact details of provider: https://edirc.repec.org/data/iesegfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.