IDEAS home Printed from https://ideas.repec.org/p/ofr/wpaper/13-09.html
   My bibliography  Save this paper

How Likely is Contagion in Financial Networks?

Author

Listed:
  • Paul Glasserman

    () (Columbia Business School, Columbia University)

  • Peyton Young

    () (Office of Financial Research)

Abstract

Interconnections among financial institutions create potential channels for contagion and amplification of shocks to the financial system. We estimate the extent to which interconnections increase expected losses, with minimal information about network topology, under a wide range of shock distributions. Expected losses from network effects are small without substantial heterogeneity in bank sizes and a high degree of reliance on interbank funding. They are also small unless shocks are magnified by some mechanism beyond simple spillover effects; these include bankruptcy costs, fire sales, and mark-to-market revaluations of assets. We illustrate the results with data on the European banking system.

Suggested Citation

  • Paul Glasserman & Peyton Young, 2013. "How Likely is Contagion in Financial Networks?," Working Papers 13-09, Office of Financial Research, US Department of the Treasury.
  • Handle: RePEc:ofr:wpaper:13-09
    as

    Download full text from publisher

    File URL: https://financialresearch.gov/working-papers/files/OFRwp0009_GlassermanYoung_HowLikelyContagionFinancialNetworks.pdf
    File Function: First version, 2013
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Office of Financial Research (ed.), 2013. "Office of Financial Research 2013 Annual Report," Reports, Office of Financial Research, US Department of the Treasury, number 13-2, March.

    More about this item

    Keywords

    systemic risk; contagion; financial network;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ofr:wpaper:13-09. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gregory Feldberg). General contact details of provider: http://edirc.repec.org/data/ofrgvus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.