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Contagion Risk in the Croatian Banking System

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  • Marko Krznar

Abstract

This paper explores systemic risk in the Croatian interbank market, focusing on interbank credit risk. In theory, bank contagion depends on the size and structure of the interbank market. It is found that the dimension of the Croatian interbank market is small and that it can be described as a multiple money centre structure, with bilateral exposures concentrated on a few big banks. In order to assess contagion risk in the banking system, simulations of idiosyncratic bank failures and macroeconomic shocks were performed. Because of the shallow domestic interbank market, the first order requirement for bank contagion due to an idiosyncratic failure is not fulfilled. This requirement is also not satisfied in the case of the exposures to foreign banks, although they five times exceed the level of the domestic interbank market. Bank contagion stemming from macroeconomic shocks, although theoretically possible, could only materialise in highly improbable scenarios.

Suggested Citation

  • Marko Krznar, 2009. "Contagion Risk in the Croatian Banking System," Working Papers 20, The Croatian National Bank, Croatia.
    • Handle: RePEc:hnb:wpaper:20
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    Cited by:

    1. Giampaolo Gabbi & Alesia Kalbaska & Alessandro Vercelli, 2014. "Factors generating and transmitting the financial crisis: The role of incentives: securitization and contagion," Working papers wpaper56, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    2. Shouwei Li & Minghui Zhang, 2016. "Money-center structures in dynamic banking systems," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 89(10), pages 1-7, October.
    3. Kox, Henk L.M. & Leeuwen, George van, 2012. "Dynamic market selection in EU business services," MPRA Paper 41016, University Library of Munich, Germany.
    4. G. Wims & D. Martens & M. De Backer, 2011. "Network Models of Financial Contagion: A Definition and Literature Review," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/730, Ghent University, Faculty of Economics and Business Administration.
    5. Michiel Bijlsma & Wim Suyker, 2008. "The credit crisis and the Dutch economy... in eight frequently asked questions," CPB Memorandum 210.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Lara Mónica Machado Fernandes & Maria Rosa Borges, 2013. "Interbank Linkages and Contagion Risk in the Portuguese Banking System," Working Papers Department of Economics 2013/23, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    7. Alesia Kalbaska, 2013. "From Sovereigns to Banks: Evidence on Cross-border Contagion (2006-2011)," Department of Economics University of Siena 680, Department of Economics, University of Siena.
    8. Michiel Bijlsma & Jeroen Klomp & Sijmen Duineveld, 2010. "Systemic risk in the financial sector; a review and synthesis," CPB Document 210.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    Keywords

    interbank exposures; bank contagion; idiosyncratic bank failure; macroeconomic shock;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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