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Multi-layered interbank model for assessing systemic risk

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  • Montagna, Mattia
  • Kok, Christoffer

Abstract

In this paper, we develop an agent-based multi-layered interbank network model based on a sample of large EU banks. The model allows for taking a more holistic approach to interbank contagion than is standard in the literature. A key finding of the paper is that there are non-negligible non-linearities in the propagation of shocks to individual banks when taking into account that banks are related to each other in various market segments. In a nutshell, the contagion effects when considering the shock propagation simultaneously across multiple layers of interbank networks can be substantially larger than the sum of the contagion-induced losses when considering the network layers individually. In addition, a bank 'systemic importance' measure based on the multi-layered network model is developed and is shown to outperform standard network centrality indicators.

Suggested Citation

  • Montagna, Mattia & Kok, Christoffer, 2013. "Multi-layered interbank model for assessing systemic risk," Kiel Working Papers 1873, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1873
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    financial contagion; interbank market; network theory;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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