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Contagion in Financial Networks: A Threat Index

Listed author(s):
  • Gabrielle Demange

Interbank claims are a concern to regulators as they might facilitate the dissemination of defaults and generate spill-over effects. Building on a simple model, this paper introduces a measure of the spill-over effects that a bank generates when it defaults. The measure is based on an explicit criterion, the aggregate debt repayments, and is bank’s specific, affected by the bank’s characteristics and links to other banks. Such measure can be useful to a regulator to determine in which banks cash should be injected during a default episode or to evaluate the impact of raising capital before the occurrence of default. The approach applies more generally to a system of entities that are linked through financial claims. This is illustrated to evaluate the consolidated foreign claims of 10 EU countries.

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File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp5307.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 5307.

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Date of creation: 2015
Handle: RePEc:ces:ceswps:_5307
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  1. Mark A. Aguiar & Manuel Amador, 2011. "Fiscal Policy in Debt Constrained Economies," NBER Working Papers 17457, National Bureau of Economic Research, Inc.
  2. Gai, Prasanna & Kapadia, Sujit, 2010. "Contagion in financial networks," Bank of England working papers 383, Bank of England.
  3. Coralio Ballester & Antoni Calvó-Armengol & Yves Zenou, 2006. "Who's Who in Networks. Wanted: The Key Player," Econometrica, Econometric Society, vol. 74(5), pages 1403-1417, 09.
  4. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-638, August.
  5. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Risk Assessment for Banking Systems," Management Science, INFORMS, vol. 52(9), pages 1301-1314, September.
  6. Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2010. "Attributing systemic risk to individual institutions," BIS Working Papers 308, Bank for International Settlements.
  7. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, vol. 48(4), pages 827-849, August.
  8. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  9. Shin, Hyun Song, 2008. "Risk and liquidity in a system context," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 315-329, July.
  10. repec:dau:papers:123456789/14967 is not listed on IDEAS
  11. Leo Katz, 1953. "A new status index derived from sociometric analysis," Psychometrika, Springer;The Psychometric Society, vol. 18(1), pages 39-43, March.
  12. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
  13. Degryse, H.A. & Nguyen, G., 2004. "Interbank Exposures : An Empirical Examination of Systemic Risk in the Belgian Banking System," Discussion Paper 2004-4, Tilburg University, Center for Economic Research.
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