Macroprudential Consolidation Policy in Interbank Networks
Can consolidation policy be made consistent with macro-prudential supervision? In this study, we seek to provide new insights on this key-question using a network approach. We study how the resilience of a banking network evolves as we shock an initially homogenous competitive market with a sequence of M&A activities that significantly alter the topology of the network. We study how different M&A treatments impact on the structural vulnerabilities that can propagate through the system and we show that the severity of contagion and default dynamics depends on the chosen treatment. The desirability of alternative competitive settings (such as hub-centered market or a more concentrated and yet symmetric market) are assessed against an homogenous benchmark case and we show that the choice depends crucially on the size of the interbank market and the level of bank capitalization. The existence of a large highly connected hub is beneficial in a capitalized network with a well-developed interbank market but it can significantly weaken the system resilience in a poorly capitalized market. Antitrust and competition authorities shall adopt a state-contingent approach to M&A activities according to the market conditions in which banks operate.
|Date of creation:||2014|
|Date of revision:|
|Contact details of provider:|| Postal: Via Inama 5, 38100 Trento|
Web page: http://www.unitn.it/economia
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Battiston, Stefano & Gatti, Domenico Delli & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2012.
"Default cascades: When does risk diversification increase stability?,"
Journal of Financial Stability,
Elsevier, vol. 8(3), pages 138-149.
- 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.
- Yaron Leitner, 2005. "Financial Networks: Contagion, Commitment, and Private Sector Bailouts," Journal of Finance, American Finance Association, vol. 60(6), pages 2925-2953, December.
- Allen Berger & Leora Klapper & Rima Turk-Ariss, 2009.
"Bank Competition and Financial Stability,"
Journal of Financial Services Research,
Springer, vol. 35(2), pages 99-118, April.
- 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.
- Xavier Vives T., 2010.
"Competition and Stability in Banking,"
Journal Economía Chilena (The Chilean Economy),
Central Bank of Chile, vol. 13(2), pages 85-112, August.
- Xavier Vives, 2011. "Competition and Stability in Banking," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.), Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 12, pages 455-502 Central Bank of Chile.
- Vives, Xavier, 2010. "Competition and stability in banking," IESE Research Papers D/852, IESE Business School.
- Xavier Vives, 2010. "Competition and Stability in Banking," Working Papers Central Bank of Chile 576, Central Bank of Chile.
- Xavier Vives, 2010. "Competition and Stability in Banking," CESifo Working Paper Series 3050, CESifo Group Munich.
- Joon‐Ho Hahm & Hyun Song Shin & Kwanho Shin, 2013.
"Noncore Bank Liabilities and Financial Vulnerability,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 45, pages 3-36, 08.
- Joon-Ho Hahm & Hyun Song Shin & Kwanho Shin, 2012. "Non-Core Bank Liabilities and Financial Vulnerability," NBER Working Papers 18428, National Bureau of Economic Research, Inc.
- E. Gaffeo & M. Molinari, 2015.
"Interbank contagion and resolution procedures: inspecting the mechanism,"
Taylor & Francis Journals, vol. 15(4), pages 637-652, April.
- Edoardo Gaffeo & Massimo Molinari, 2013. "Interbank contagion and resolution procedures: inspecting the mechanism," DEM Discussion Papers 2013/09, Department of Economics and Management.
- Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007.
"Network models and financial stability,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 31(6), pages 2033-2060, June.
- Gai, Prasanna & Haldane, Andrew & Kapadia, Sujit, 2011. "Complexity, concentration and contagion," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 453-470.
- Gai, Prasanna & Kapadia, Sujit, 2010. "Contagion in financial networks," Bank of England working papers 383, Bank of England.
When requesting a correction, please mention this item's handle: RePEc:trn:utwpem:2014/01. 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: (email@example.com)
If references are entirely missing, you can add them using this form.