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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.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/130031/1/ARTICLEBARRE-RAYBAUT-TORRE.pdf
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Article provided by ULB -- Universite Libre de Bruxelles in its journal Brussels economic review.

Volume (Year): 55 (2012)
Issue (Month): 1 ()
Pages: 75-96

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Handle: RePEc:bxr:bxrceb:2013/130031
Contact details of provider: Web page: http://difusion.ulb.ac.be

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  1. Allen, Franklin & Carletti, Elena, 2006. "Credit risk transfer and contagion," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 89-111, January.
  2. Ana Babus, 2006. "Contagion Risk in Financial Networks," Chapters, in: Financial Development, Integration and Stability, chapter 23 Edward Elgar Publishing.
  3. G. Bonanno & G. Caldarelli & F. Lillo & S. Micciche` & N. Vandewalle & R. N. Mantegna, 2004. "Networks of equities in financial markets," Papers cond-mat/0401300, arXiv.org.
  4. Franklin Allen & Douglas Gale, 2000. "Financial Contagion," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 1-33, February.
  5. Boissay, Frédéric, 2006. "Credit chains and the propagation of financial distress," Working Paper Series 0573, European Central Bank.
  6. Stefano Battiston & Domenico Delli Gatti & Mauro Gallegati & Bruce C. Greenwald & Joseph E. Stiglitz, 2009. "Liaisons Dangereuses: Increasing Connectivity, Risk Sharing, and Systemic Risk," NBER Working Papers 15611, National Bureau of Economic Research, Inc.
  7. 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.
  8. Michael Boss & Martin Summer & Stefan Thurner, 2004. "Contagion Flow Through Banking Networks," Papers cond-mat/0403167, arXiv.org.
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