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Insolvency and Contagion in the Brazilian Interbank Market

Author Info

  • Sergio R. S. Souza
  • Benjamin M. Tabak
  • Solange M. Guerra

Abstract

This paper analyzes the financial institutions (FIs) that operate in the Brazilian Interbank Market, investigating, through simulations, the potential contagion that they present, the contagion losses' and the contagion route associated to FIs' bankruptcies, and the value of the 1-year expected loss of the financial system. The paper also computes the possibility of contagion of other markets triggered by FIs' defaults in the interbank market. Besides, it identifies contagion transmitter FIs and losses amplifier FIs in the market studied. The analyses performed found no particularly important source of stress in the Brazilian financial system, in the period.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps320.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 320.

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Date of creation: Aug 2013
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Handle: RePEc:bcb:wpaper:320
Contact details of provider: Web page: http://www.bcb.gov.br/?english

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  1. Elsinger, Helmut & Lehar, Alfred & Summer, Martin, 2005. "Using Market Information for Banking System Risk Assessment," MPRA Paper 817, University Library of Munich, Germany.
  2. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
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  8. Marcos Souto & Benjamin M. Tabak & Francisco Vazquez, 2009. "Linking Financial and Macroeconomic Factors to Credit Risk Indicators of Brazilian Banks," Working Papers Series 189, Central Bank of Brazil, Research Department.
  9. Krause, Andreas & Giansante, Simone, 2012. "Interbank lending and the spread of bank failures: A network model of systemic risk," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 583-608.
  10. Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
  11. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  12. Furfine, Craig H, 2003. " Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 111-28, February.
  13. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
  14. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
  15. Lee, Seung Hwan, 2013. "Systemic liquidity shortages and interbank network structures," Journal of Financial Stability, Elsevier, vol. 9(1), pages 1-12.
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