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Banks Connectivity, Credit Risk Transfer and Stability of the Banking System


  • Julien Barre
  • Alain Raybaut
  • Dominique Torre


Our dynamic model captures the network relations generated by credit risk transfer andsecuritization. Each bank determines its own level of risk according to fundamentals and the levelof risk of its environment, given the possibilities opened by credit risk transfer. The dynamics ofthe model is generated by the network structure of the interbank relations. A highly connectednetwork generates forces able to make the long term equilibrium of the bank industry dependanton initial conditions. Irregularity in the network can also explain that a final heterogeneity appearin the final situation of banks, even when their fundamentals were originally similar.

Suggested Citation

  • Julien Barre & Alain Raybaut & Dominique Torre, 2012. "Banks Connectivity, Credit Risk Transfer and Stability of the Banking System," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(1), pages 75-96.
  • Handle: RePEc:bxr:bxrceb:2013/130031

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    References listed on IDEAS

    1. Morten L. 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," Staff Reports 356, Federal Reserve Bank of New York.
    2. Bech, Morten L. & Chapman, James T.E. & Garratt, Rodney J., 2010. "Which bank is the "central" bank?," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 352-363, April.
    3. G. Bonanno & G. Caldarelli & F. Lillo & S. Micciché & N. Vandewalle & R. Mantegna, 2004. "Networks of equities in financial markets," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 38(2), pages 363-371, March.
    4. Allen, Franklin & Carletti, Elena, 2006. "Credit risk transfer and contagion," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 89-111, January.
    5. Battiston, Stefano & Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2012. "Liaisons dangereuses: Increasing connectivity, risk sharing, and systemic risk," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1121-1141.
    6. Franklin Allen & Douglas Gale, 2000. "Financial Contagion," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 1-33, February.
    7. Michael Boss & Martin Summer & Stefan Thurner, 2004. "Contagion Flow Through Banking Networks," Papers cond-mat/0403167,
    8. Ana Babus, 2006. "Contagion Risk in Financial Networks," Chapters,in: Financial Development, Integration and Stability, chapter 23 Edward Elgar Publishing.
    9. Boissay, Frédéric, 2006. "Credit chains and the propagation of financial distress," Working Paper Series 573, European Central Bank.
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    Cited by:

    1. Giampaolo Gabbi & Alesia Kalbaska & Alessandro Vercelli, 2014. "Factors generating and transmitting the financial crisis: The role of incentives: securitization and contagion," Working papers wpaper56, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

    More about this item


    Banking networks; Securitization; Financial crisis contagion;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General


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