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Loss distribution of systemic defaults in different interbank networks

Author

Listed:
  • Shouwei Li

    (School of Economics and Management, Southeast University, Nanjing, 211189, China)

  • Jianmin He

    () (School of Economics and Management, Southeast University, Nanjing, 211189, China)

Abstract

We analyze the impact of the network structure, the default probability and the loss given default (LGD) on the loss distribution of systemic defaults in the interbank market, where network structures analyzed include random networks, small-world networks and scale-free networks. We find that the network structure has little effect on the shape of the loss distribution, whereas the opposite is true to the default probability; the LGD changes the shape of the loss distribution significantly when default probabilities are high; the maximum of the possible loss is sensitive to the network structure and the LGD.

Suggested Citation

  • Shouwei Li & Jianmin He, 2016. "Loss distribution of systemic defaults in different interbank networks," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 27(10), pages 1-9, October.
  • Handle: RePEc:wsi:ijmpcx:v:27:y:2016:i:10:n:s0129183116501217
    DOI: 10.1142/S0129183116501217
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    References listed on IDEAS

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    1. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
    2. Memmel, Christoph & Sachs, Angelika & Stein, Ingrid, 2011. "Contagion at the interbank market with stochastic LGD," Discussion Paper Series 2: Banking and Financial Studies 2011,06, Deutsche Bundesbank.
    3. Yellen, Janet L., 2013. "Interconnectedness and Systemic Risk: Lessons from the Financial Crisis and Policy Implications : a speech at the American Economic Association/American Finance Association Joint Luncheon, San Diego, ," Speech 631, Board of Governors of the Federal Reserve System (U.S.).
    4. Lara Mónica Machado Fernandes & Maria Rosa Borges, 2013. "Interbank Linkages and Contagion Risk in the Portuguese Banking System," Working Papers Department of Economics 2013/23, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
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