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The Determinants of Interbank Contagion: Do Patterns Matter?

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

Listed:
  • Stefano Zedda

    (European Commission, Joint Research Centre
    University of Cagliari, Department of Business and Economics)

  • Giuseppina Cannas

    (European Commission, Joint Research Centre)

  • Clara Galliani

    (European Commission, Joint Research Centre)

Abstract

The recent financial crisis highlighted that interconnectedness between banks has a crucial role, and can push the effects of bank defaults to extreme levels. Interconnectedness in banking systems can be modelled trough the interbank market structure. As only data on interbank credits and debts aggregated at bank level are publicly available, one common hypothesis is to assume that banks maximise the dispersion of their interbank credits and debts, so that the interbank matrix is approximated by its maximum entropy realisation. The aim of this paper is to test the influence of this approximation on simulations, and verifying if variations in the structure of the interbank matrix systematically change the magnitude of contagion. Numerical experiments on samples of banks from four European countries, showed that different interbank matrices produce small changes in the point estimation. Nevertheless, they significantly affect variability and confidence interval for the estimates, in particular in banking systems when contagion effects are more intense.

Suggested Citation

  • Stefano Zedda & Giuseppina Cannas & Clara Galliani, 2014. "The Determinants of Interbank Contagion: Do Patterns Matter?," Springer Books, in: Marco Corazza & Claudio Pizzi (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 303-313, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-02499-8_27
    DOI: 10.1007/978-3-319-02499-8_27
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