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Insolvency and Contagion in the Brazilian Interbank Market

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

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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  17. 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.
  18. Stefano Battiston & Domenico Delli Gatti & Mauro Gallegati & Bruce Greenwald & Joseph E. Stiglitz, . "Default Cascades: When Does Risk Diversification Increase Stability?," Working Papers ETH-RC-11-006, ETH Zurich, Chair of Systems Design.
  19. Sorge, Marco & Virolainen, Kimmo, 2006. "A comparative analysis of macro stress-testing methodologies with application to Finland," Journal of Financial Stability, Elsevier, vol. 2(2), pages 113-151, June.
  20. Jin, Xisong & Nadal De Simone, Francisco, 2014. "A framework for tracking changes in the intensity of investment funds' systemic risk," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 343-368.
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