IDEAS home Printed from https://ideas.repec.org/p/zbw/bubdp2/201106.html
   My bibliography  Save this paper

Contagion at the interbank market with stochastic LGD

Author

Listed:
  • Memmel, Christoph
  • Sachs, Angelika
  • Stein, Ingrid

Abstract

This paper investigates contagion at the German interbank market under the assumption of a stochastic loss given default (LGD). We combine a unique data set about the LGD of interbank loans with data about interbank exposures. We find that the frequency distribution of the LGD is u-shaped. Under the assumption of a stochastic LGD, simulation results show a more fragile banking system than under the assumption of a constant LGD. There are three types of banks concerning their tendency to trigger contagion: banks with strongly varying impact, banks whose impact is relatively constant, and banks with no direct impact.

Suggested Citation

  • Memmel, Christoph & Sachs, Angelika & Stein, Ingrid, 2011. "Contagion at the interbank market with stochastic LGD," Discussion Paper Series 2: Banking and Financial Studies 2011,06, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp2:201106
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/45176/1/656649283.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jorge A Chan-Lau, 2010. "Balance Sheet Network Analysis of Too-Connected-to-Fail Risk in Global and Domestic Banking Systems," IMF Working Papers 2010/107, International Monetary Fund.
    2. Lelyveld, Iman van & Liedorp, Franka, 2004. "Interbank Contagion in the Dutch Banking Sector," MPRA Paper 651, University Library of Munich, Germany, revised 11 Jul 2005.
    3. Juan Sole & Marco A Espinosa-Vega, 2010. "Cross-Border Financial Surveillance; A Network Perspective," IMF Working Papers 2010/105, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Nicolas Arregui & Mohamed Norat & Antonio Pancorbo & Jodi G Scarlata & Eija Holttinen & Fabiana Melo & Jay Surti & Christopher Wilson & Rodolfo Wehrhahn & Mamoru Yanase, 2013. "Addressing Interconnectedness; Concepts and Prudential Tools," IMF Working Papers 2013/199, International Monetary Fund.
    2. Memmel, Christoph & Sachs, Angelika, 2013. "Contagion in the interbank market and its determinants," Journal of Financial Stability, Elsevier, vol. 9(1), pages 46-54.
    3. Bosma, Jakob & Koetter, Michael & Wedow, Michael, 2012. "Credit risk connectivity in the financial industry and stabilization effects of government bailouts," Discussion Papers 16/2012, Deutsche Bundesbank.
    4. Shouwei Li & Jianmin He, 2016. "Loss distribution of systemic defaults in different interbank networks," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 27(10), pages 1-9, October.
    5. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alesia Kalbaska & Cesario Mateus, 2019. "From sovereigns to banks: evidence on cross-border contagion," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(1), pages 86-103, March.
    2. Javier A. Reyes & Camelia Minoiu, 2011. "A network analysis of global banking; 1978–2009," IMF Working Papers 2011/074, International Monetary Fund.
    3. Christoph Memmel & Angelika Sachs & Ingrid Stein, 2012. "Contagion in the Interbank Market with Stochastic Loss Given Default," International Journal of Central Banking, International Journal of Central Banking, vol. 8(3), pages 177-206, September.
    4. Sachs, Angelika, 2010. "Completeness, interconnectedness and distribution of interbank exposures: A parameterized analysis of the stability of financial networks," Discussion Paper Series 2: Banking and Financial Studies 2010,08, Deutsche Bundesbank.
    5. Carlos Castro & Juan Sebastian Ordoñez, 2012. "A Network model of systemic risk: identifying the sources of dependence across institutions," Documentos de Trabajo 009651, Universidad del Rosario.
    6. Mistrulli, Paolo Emilio, 2011. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1114-1127, May.
    7. Ben Craig & Martín Saldías, 2016. "Spatial Dependence and Data-Driven Networks of International Banks," IMF Working Papers 2016/184, International Monetary Fund.
    8. Fecht, Falko & Grüner, Hans Peter & Hartmann, Philipp, 2012. "Financial integration, specialization, and systemic risk," Journal of International Economics, Elsevier, vol. 88(1), pages 150-161.
    9. Lu, Shan & Zhao, Jichang & Wang, Huiwen & Ren, Ruoen, 2018. "Herding boosts too-connected-to-fail risk in stock market of China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 945-964.
    10. Rob Bauer & Matteo Bonneti & Dirk Broeders, 2018. "Pension Funds Interconnections and Herd Behavior," DNB Working Papers 612, Netherlands Central Bank, Research Department.
    11. Angelika Sachs, 2014. "Completeness, interconnectedness and distribution of interbank exposures-a parameterized analysis of the stability of financial networks," Quantitative Finance, Taylor & Francis Journals, vol. 14(9), pages 1677-1692, September.
    12. Jorge Ponce & Magdalena Tubio, 2010. "Estabilidad financiera: conceptos básicos," Documentos de trabajo 2010004, Banco Central del Uruguay.
    13. Prasanna Gai & Sujit Kapadia, 2011. "A Network Model of Super-Systemic Crises," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.),Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 13, pages 411-432, Central Bank of Chile.
    14. Zevallos, Mauricio & Villarreal, Fernanda & Del Carpio, Carlos & Abbara, Omar, 2014. "Influencia de los precios de los metales y el mercado internacional en el riesgo bursátil peruano," Working Papers 2014-023, Banco Central de Reserva del Perú.
    15. Michael Koetter & Tigran Poghosyan & Thomas Kick, 2010. "Recovery Determinants of Distressed Banks; Regulators, Market Discipline, or the Environment?," IMF Working Papers 2010/027, International Monetary Fund.
    16. Mark Mink, 2010. "Do Financial Markets Expect Bank Defaults to be Contagious?," DNB Working Papers 274, Netherlands Central Bank, Research Department.
    17. Gogas, Periklis & Papadimitriou, Theophilos & Matthaiou, Maria-Artemis, 2016. "Bank supervision using the Threshold-Minimum Dominating Set," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 451(C), pages 23-35.
    18. 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.
    19. Ingo Fender & Patrick McGuire, 2010. "Bank structure, funding risk and the transmission of shocks across countries: concepts and measurement," BIS Quarterly Review, Bank for International Settlements, September.
    20. Leonidov, A. & Rumyantsev, E., 2013. "Russian Interbank Systemic Risks Assessment from the Network Topology Point of View," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 65-80.

    More about this item

    Keywords

    interbank market; contagion; stochastic LGD;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • 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:zbw:bubdp2:201106. 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: (ZBW - Leibniz Information Centre for Economics). General contact details of provider: https://edirc.repec.org/data/dbbgvde.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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.