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Banks and Their Contagion Potential: How Stable Is Banking System?

In: Artificial Economics and Self Organization

Author

Listed:
  • Mitja Steinbacher

    (Catholic Institute)

  • Matjaz Steinbacher

    (Kiel Institute for The World Economy)

  • Matej Steinbacher

    (University of Donja Gorica)

Abstract

We measure contagion potential and stability of banking system on a randomized version of the credit contagion model by Steinbacher M, Steinbacher M, Steinbacher M (2012) Credit contagion in financial markets: a network-based approach. Available via SSRN. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2068716 . Cited 30 Jan 2013. We introduce two estimators of the contagion potential of banks (liquidity-loss potential and α-criticality index (Steinbacher M, Steinbacher M, Steinbacher M (2012) Credit contagion in financial markets: a network-based approach. Available via SSRN. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2068716 . Cited 30 Jan 2013)) and introduce Shannon’s entropy as a stability estimator. Our approach is systemic in that it enables an overall estimation of the capacity of the banking system to provide liquidity. Mechanism developed can be employed for measuring systemic risk of banking system as a whole.

Suggested Citation

  • Mitja Steinbacher & Matjaz Steinbacher & Matej Steinbacher, 2014. "Banks and Their Contagion Potential: How Stable Is Banking System?," Lecture Notes in Economics and Mathematical Systems, in: Stephan Leitner & Friederike Wall (ed.), Artificial Economics and Self Organization, edition 127, pages 161-175, Springer.
    • Handle: RePEc:spr:lnechp:978-3-319-00912-4_13
    DOI: 10.1007/978-3-319-00912-4_13
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    Citations

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    Cited by:

    1. Steinbacher, Matjaz & Steinbacher, Mitja & Steinbacher, Matej, 2013. "Credit Contagion in Financial Markets: A Network-Based Approach," MPRA Paper 49616, University Library of Munich, Germany.
    2. Alexander Lipton, 2016. "Modern Monetary Circuit Theory, Stability Of Interconnected Banking Network, And Balance Sheet Optimization For Individual Banks," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(06), pages 1-57, September.
    3. Alexander Lipton, 2015. "Modern Monetary Circuit Theory, Stability of Interconnected Banking Network, and Balance Sheet Optimization for Individual Banks," Papers 1510.07608, arXiv.org.

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