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Estimating Bilateral Exposures in the German Interbank Market: Is there a Danger of Contagion?

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  • Upper, Christian
  • Worms, Andreas

Abstract

Credit risk associated with interbank lending may lead to domino effects, where the failure of one bank results in the failure of other banks not directly affected by the initial shock. Recent work in economic theory shows that this risk of contagion depends on the precise pattern of interbank linkages. We use balance sheet information to estimate the matrix of bilateral credit relationships for the German banking system and test whether the breakdown of a single bank can lead to contagion. We find that the financial safety net (institutional guarantees for saving banks and cooperative banks) considerably reduces – but does not eliminate – the danger of contagion. Even so, the failure of a single bank could lead to the breakdown of up to 15 % of the banking system in terms of assets. -- Kreditrisiken aus Interbankbeziehungen können zu Dominoeffekten führen indem der Zusammenbruch einer Bank den Zusammenbruch anderer Banken bewirkt, die nicht direkt vom ursprünglichen Schock betroffen waren. Neuere theoretische Arbeiten zeigen, dass dieses Ansteckungsrisiko von der genauen Struktur der Interbankbeziehungen abhängt. Wir schätzen die Matrix bilateraler Kreditbeziehungen für das deutsche Bankensystem auf Basis von Bankbilanzdaten und testen anschliessend, ob der Zusammenbruch einer einzelnen Bank zu Ansteckungseffekten führen kann. Wir kommen zu dem Ergebnis, dass die Sicherungssysteme (institutionelle Garantien für Sparkassen und Kreditgenossenschaften) die Ansteckungsgefahr zwar beträchtlich verringern aber nicht vollständig eliminieren können. Die Zusammenbruch einer einzelnen Bank kann trotzdem zu einem Verlust von 15 % der Aktiva des gesamten Bankensystems führen.

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2002,09.

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Date of creation: 2002
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Handle: RePEc:zbw:bubdp1:4174

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Related research

Keywords: contagion; interbank market; regulation of banks;

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References

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  1. Jean-Charles Rochet & Jean Tirole, 1996. "Interbank lending and systemic risk," Proceedings, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
  2. Mathias Dewatripont & Philippe Aghion & Patrick Bolton, 2000. "Contagious bank failures in a free banking system," ULB Institutional Repository 2013/9737, ULB -- Universite Libre de Bruxelles.
  3. Aghion, Philippe & Bolton, Patrick & Dewatripont, Mathias, 2000. "Contagious bank failures in a free banking system," Scholarly Articles 12490629, Harvard University Department of Economics.
  4. 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.
  5. James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, American Finance Association, vol. 46(4), pages 1223-42, September.
  6. Angelini, P. & Maresca, G. & Russo, D., 1996. "Systemic risk in the netting system," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(5), pages 853-868, June.
  7. Aghion, Philippe & Bolton, Patrick & Dewatripont, Mathias, 2000. "Contagious bank failures in a free banking system," European Economic Review, Elsevier, Elsevier, vol. 44(4-6), pages 713-718, May.
  8. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Risk Assessment for Banking Systems," Management Science, INFORMS, INFORMS, vol. 52(9), pages 1301-1314, September.
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