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A Risk Assessment Model for Banks

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Author Info
Charles A.E. Goodhart
Pojanart Sunirand
Dimitrios P. Tsomocos

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Abstract

The objective of this paper is to propose a model to assess risk for banks. Its main innovation is to incorporate endogenous interaction between banks, recognising that the actual risk to which an individual bank is exposed also depends on its interaction with other banks and other private sector agents. To this end, we develop a two-period general equilibrium model with three active heterogeneous banks, incomplete markets, and endogenous default. The setting of three heterogeneous banks allows us to study not only interaction between any two individual banks, but also their interaction with the rest of the banks in the banking system. We show that the model is analytically tractable and can be calibrated against real UK banking data and therefore can be implemented as a risk assessment tool for financial regulators and central banks. We address the impact of monetary and regulatory policy as well as credit and capital shocks in the real and financial sectors.

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Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2004fe11.

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Date of creation: 2004
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Handle: RePEc:sbs:wpsefe:2004fe11

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Web page: http://www.finance.ox.ac.uk
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. M. Shubik & D. Tsomocos, 1992. "A strategic market game with a mutual bank with fractional reserves and redemption in gold," Journal of Economics, Springer, vol. 55(2), pages 123-150, June. [Downloadable!] (restricted)
  2. Dimitrios P Tsomocos, . "Equilibrium analysis, banking, contagion and financial fragility," Bank of England working papers 175, Bank of England. [Downloadable!]
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  3. Goodhart, Charles A. E. & Sunirand, Pojanart & Tsomocos, Dimitrios P., 2004. "A model to analyse financial fragility: applications," Journal of Financial Stability, Elsevier, vol. 1(1), pages 1-30, September. [Downloadable!] (restricted)
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  4. Eva Catarineu-Rabell & Patricia Jackson & Dimitrios P.Tsomocos, 2003. "Procyclicality and the new Basel Accord - Banks' choice of loan rating system," OFRC Working Papers Series 2003fe06, Oxford Financial Research Centre. [Downloadable!]
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  5. Dimitrios P. Tsomocos, 2003. "Equilibrium Analysis, Banking and Financial Instability," OFRC Working Papers Series 2003fe08, Oxford Financial Research Centre. [Downloadable!]
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  6. Dimitrios Tsomocos & Lea Zicchino, 2005. "On Modelling Endogenous Default," FMG Discussion Papers dp548, Financial Markets Group. [Downloadable!] (restricted)
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  7. Martin Summer & Helmut Elsinger & Alfred Lehar, 2002. "Risk Assessment for Banking Systems," Working Papers 79, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  8. Martin Shubik, 2000. "The Theory of Money," Cowles Foundation Discussion Papers 1253, Cowles Foundation, Yale University. [Downloadable!]
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  9. Charles A.E. Goodhart & Pojanart Sunirand & Dimitrios P. Tsomocos, 2003. "A Model to Analyse Financial Fragility," OFRC Working Papers Series 2003fe13, Oxford Financial Research Centre. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gregory de Walque & Olivier Pierrard & Abdelaziz Rouabah, 2008. "Financial (in)stability, supervision and liquidity injections: a dynamic general equilibrium approach," BCL working papers cahier_etude_35, Central Bank of Luxembourg. [Downloadable!]
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  2. Pierre-Richard Agénor & Koray Alper & Luiz Pereira da Silva, 2009. "Capital Requirements and Business Cycles with Credit Market Imperfections," Centre for Growth and Business Cycle Research Discussion Paper Series 124, Economics, The Univeristy of Manchester. [Downloadable!]
  3. Gunnar Bårdsen & Kjersti-Gro Lindquist & Dimitrios P. Tsomocos, 2006. "Evaluation of macroeconomic models for financial stability analysis," Working Paper Series 6806, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
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  4. Charles Goodhart & Pojanart Sunirand & Dimitrios Tsomocos, 2006. "A Time Series Analysis of Financial Fragility in the UK Banking System," Annals of Finance, Springer, vol. 2(1), pages 1-21, January. [Downloadable!] (restricted)
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  5. Miguel A. Segoviano Basurto & Boris Hofmann & C. A. E. Goodhart, 2006. "Default, Credit Growth, and Asset Prices," IMF Working Papers 06/223, International Monetary Fund. [Downloadable!]
  6. C.A.E. Goodhart & P. Sunirand & D.P. Tsomocos, 2008. "The Optimal Monetary Instrument for Prudential Purposes," OFRC Working Papers Series 2008fe26, Oxford Financial Research Centre. [Downloadable!]
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  7. Agustín Saade & Daniel Osorio & Dairo Estrada, 2007. "An equilibrium approach to financial stability analysis: the Colombian case," Annals of Finance, Springer, vol. 3(1), pages 75-105, January. [Downloadable!] (restricted)
  8. O. Aspachs & C. Goodhart & M. Segoviano & D. Tsomocos & L. Zicchino, 2006. "Searching for a Metric for Financial Stability," OFRC Working Papers Series 2006fe09, Oxford Financial Research Centre. [Downloadable!]
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  9. Oriol Aspachs & Charles A.E. Goodhart & Dimitrios P. Tsomocos & Lea Zicchino, 2006. "Towards a Measure of Financial Fragility," OFRC Working Papers Series 2006fe04, Oxford Financial Research Centre. [Downloadable!]
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  10. Sudipto Bhattacharya & Charles A. E. Goodhart & Pojanart Sunirand & Dimitrios P. Tsomocos, 2006. "Banks, Relative Performance, and Sequential Contagion," OFRC Working Papers Series 2006fe10, Oxford Financial Research Centre. [Downloadable!]
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  11. Dimitrios Tsomocos & C.A.E. Goodhart, 2007. "Analysis of Financial Stability," OFRC Working Papers Series 2007fe04, Oxford Financial Research Centre. [Downloadable!]
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  12. Chiara Pederzoli & Costanza Torricelli & Dimitrios P. Tsomocos, 2008. "Rating systems, procyclicality and Basel II: an evaluation in a general equilibrium framework," OFRC Working Papers Series 2008fe27, Oxford Financial Research Centre. [Downloadable!]
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