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CoMap: Mapping Contagion in the Euro Area Banking Sector

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  • Mehmet Ziya Gorpe
  • Giovanni Covi
  • Christoffer Kok

Abstract

This paper presents a novel approach to investigate and model the network of euro area banks’ large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We develop a Contagion Mapping model fully calibrated with bank-level data to study the contagion potential of an exogenous shock via credit and funding risks. We find that tipping points shifting the euro area banking system from a less vulnerable state to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics.

Suggested Citation

  • Mehmet Ziya Gorpe & Giovanni Covi & Christoffer Kok, 2019. "CoMap: Mapping Contagion in the Euro Area Banking Sector," IMF Working Papers 2019/102, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/102
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    Cited by:

    1. Chen, Bing & Li, Li & Peng, Fei & Anwar, Sajid, 2020. "Risk contagion in the banking network: New evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    2. Matthew O. Jackson & Agathe Pernoud, 2021. "Systemic Risk in Financial Networks: A Survey," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 171-202, August.
    3. Gerson N. Cardoso & Geraldo E. Silva, 2024. "Electoral influences on the Brazilian B3 data correlation network," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 251-272, January.
    4. Ellis, Scott & Sharma, Satish & Brzeszczyński, Janusz, 2022. "Systemic risk measures and regulatory challenges," Journal of Financial Stability, Elsevier, vol. 61(C).
    5. Salvador Contreras & Manthos D. Delis & Amit Ghosh & Iftekhar Hasan, 2022. "Bank failures, local business dynamics, and government policy," Small Business Economics, Springer, vol. 58(4), pages 1823-1851, April.
    6. Lebastard, Laura, 2022. "Financial exposure and bank mergers: micro and macro evidence from the EU," Working Paper Series 2724, European Central Bank.
    7. Financial Stability Committee, Task Force on cross-border Spillover Effects of macroprudential measures & Kok, Christoffer & Reinhardt, Dennis, 2020. "Cross-border spillover effects of macroprudential policies: a conceptual framework," Occasional Paper Series 242, European Central Bank.
    8. David Aikman & Daniel Beale & Adam Brinley-Codd & Anne-Caroline Hüser & Giovanni Covi & Caterina Lepore, 2023. "Macro-Prudential Stress Test Models: A Survey," IMF Working Papers 2023/173, International Monetary Fund.
    9. Mitja Steinbacher & Matthias Raddant & Fariba Karimi & Eva Camacho Cuena & Simone Alfarano & Giulia Iori & Thomas Lux, 2021. "Advances in the agent-based modeling of economic and social behavior," SN Business & Economics, Springer, vol. 1(7), pages 1-24, July.
    10. Mrs. Jana Bricco & Ms. TengTeng Xu, 2019. "Interconnectedness and Contagion Analysis: A Practical Framework," IMF Working Papers 2019/220, International Monetary Fund.
    11. Sydow, Matthias & Schilte, Aurore & Covi, Giovanni & Deipenbrock, Marija & Del Vecchio, Leonardo & Fiedor, Paweł & Fukker, Gábor & Gehrend, Max & Gourdel, Régis & Grassi, Alberto & Hilberg, Björn & Ka, 2021. "Shock amplification in an interconnected financial system of banks and investment funds," Working Paper Series 2581, European Central Bank.
    12. Meglioli, Francesco & Gauci, Stephanie, 2021. "A Multi-level Network Approach to Spillovers Analysis: An Application to the Maltese Domestic Investment Funds Sector," ESRB Working Paper Series 124, European Systemic Risk Board.

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    More about this item

    Keywords

    WP; central bank; capital base; banking system; discount rate; Systemic Risk; Network Analysis; Interconnectedness; Large Exposures; Stress Test; Macroprudential Policy; balance sheet; EA bank; liquidity surplus; funding risk; bank default; default threshold; RWAs vis-à-vis credit institution; Vulnerability index; Liquidity; Asset liquidity; Commercial banks; Credit risk; Global;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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