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Balance Sheet Network Analysis of too-Connected-To-Fail Risk in Global and Domestic Banking Systems

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  • Jorge A. Chan-Lau

Abstract

The 2008/9 financial crisis highlighted the importance of evaluating vulnerabilities owing to interconnectedness, or Too-Connected-to-Fail risk, among financial institutions for country monitoring, financial surveillance, investment analysis and risk management purposes. This paper illustrates the use of balance sheet-based network analysis to evaluate interconnectedness risk, under extreme adverse scenarios, in banking systems in mature and emerging market countries, and between individual banks in Chile, an advanced emerging market economy.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/107.

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Length: 25
Date of creation: 01 Apr 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/107

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Keywords: Bank accounting; Banking systems; Capital; Credit risk; Developed countries; Emerging markets; Financial institutions; Financial risk; International banking; Risk management; banking; banking system; capital losses; capital loss; bank defaults; banking statistics; bank capital; subsidiaries; bank for international settlements; banking sector; bank of england; banking system failure; bank of canada; interbank market; deposit insurance; bank records; banking supervisory agency; tier 1 capital; bank balance sheet; bank branches; tier 2 capital; corporate loans; banking supervision; equity shares; bank exposure; settlement system; computational finance; banking networks; banking system failures; bank exposures; central banking; bank failures; debt securities; bank ? defaults; bank closure; bank subsidiaries; bank reports; prudential regulation; bank funding; bank claim; bank claims; cash accounting; retained earnings; bank default; banking stability;

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References

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  1. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, Elsevier, vol. 48(4), pages 827-849, August.
  2. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2008. "Network models and financial stability," Bank of England working papers, Bank of England 346, Bank of England.
  3. Acharya, Viral V & Yorulmazer, Tanju, 2004. "Too Many to Fail - An Analysis of Time Inconsistency in Bank Closure Policies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4778, C.E.P.R. Discussion Papers.
  4. Jorge A. Chan-Lau, 2010. "The Global Financial Crisis and its Impacton the Chilean Banking System," IMF Working Papers, International Monetary Fund 10/108, International Monetary Fund.
  5. Morten Bech & James T. E. Chapman & Rod Garratt, 2008. "Which Bank is the "Central" Bank? An Application of Markov Theory to the Canadian Large Value Transfer System," Working Papers, Bank of Canada 08-42, Bank of Canada.
  6. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Risk Assessment for Banking Systems," Management Science, INFORMS, INFORMS, vol. 52(9), pages 1301-1314, September.
  7. Furfine, Craig H, 2003. " Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(1), pages 111-28, February.
  8. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 379(1), pages 317-333.
  9. Masazumi Hattori & Yuko Suda, 2007. "Developments in a cross-border bank exposure "network"," CGFS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Research on global financial stability: the use of BIS international financial statistics, volume 29, pages 16-31 Bank for International Settlements.
  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), Swiss Society of Economics and Statistics (SSES), vol. 134(IV), pages 685-704, December.
  11. Iman van Lelyveld & Franka Liedorp, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
  12. Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2009. "The systemic importance of financial institutions," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, September.
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Citations

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Cited by:
  1. Alesia Kalbaska, 2013. "From Sovereigns to Banks: Evidence on Cross-border Contagion (2006-2011)," Department of Economics University of Siena, Department of Economics, University of Siena 680, Department of Economics, University of Siena.
  2. Gabriele Galati & Richhild Moessner, 2011. "Macroprudential policy - a literature review," BIS Working Papers 337, Bank for International Settlements.
  3. Memmel, Christoph & Sachs, Angelika & Stein, Ingrid, 2011. "Contagion at the interbank market with stochastic LGD," Discussion Paper Series 2: Banking and Financial Studies 2011,06, Deutsche Bundesbank, Research Centre.
  4. Carlos Castro & Juan Sebastian Ordoñez, 2012. "A Network model of systemic risk: identifying the sources of dependence across institutions," DOCUMENTOS DE TRABAJO, UNIVERSIDAD DEL ROSARIO 009651, UNIVERSIDAD DEL ROSARIO.
  5. Augusto Hasman, 2013. "A Critical Review Of Contagion Risk In Banking," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 27(5), pages 978-995, December.
  6. Carlos Castro & Stijn Ferrari, 2011. "Measuring and testing for the systemically important financial institutions," DOCUMENTOS DE TRABAJO, UNIVERSIDAD DEL ROSARIO 008779, UNIVERSIDAD DEL ROSARIO.
  7. Sachs, Angelika, 2010. "Completeness, interconnectedness and distribution of interbank exposures: A parameterized analysis of the stability of financial networks," Discussion Paper Series 2: Banking and Financial Studies 2010,08, Deutsche Bundesbank, Research Centre.
  8. Javier A. Reyes & Camelia Minoiu, 2011. "A Network Analysis of Global Banking:1978-2009," IMF Working Papers, International Monetary Fund 11/74, International Monetary Fund.

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