Download or read book Assessing Interbank Contagion Using Simulated Networks written by Grzegorz Hałaj and published by . This book was released on 2013 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This paper presents a new approach to randomly generate interbank networks while overcoming shortcomings in the availability of bank-by-bank bilateral exposures. Our model can be used to simulate and assess interbank contagion effects on banking sector soundness and resilience. We find a strongly non-linear pattern across the distribution of simulated networks, whereby only for a small percentage of networks the impact of interbank contagion will substantially reduce average solvency of the system. In the vast majority of the simulated networks the system-wide contagion effects are largely negligible. The approach furthermore enables to form a view about the most systemic banks in the system in terms of the banks whose failure would have the most detrimental contagion effects on the system as a whole. Finally, as the simulation of the network structures is computationally very costly, we also propose a simplified measure - a so-called Systemic Probability Index (SPI) - that also captures the likelihood of contagion from the failure of a given bank to honour its interbank payment obligations but at the same time is less costly to compute. We find that the SPI is broadly consistent with the results from the simulated network structures."--Abstract.

Download or read book Simulating Financial Contagion Dynamics in Random Interbank Networks written by John Leventides and published by . This book was released on 2019 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this study is to assess the resilience of financial systems to exogenous shocks using techniques drawn from the theory of complex networks. We investigate by means of Monte Carlo simulations the fragility of several network topologies using a simple default model of contagion applied on interbank networks of varying sizes. We trigger a series of banking crises by exogenously failing each bank in the system and observe the propagation mechanisms that take effect within the system under different scenarios. Finally, we add to the existing literature by analyzing the interplay of several crucial drivers of interbank contagion, such as network topology, leverage, interconnectedness, heterogeneity and homogeneity across bank sizes and interbank exposures.

Download or read book Using Counterfactual Simulations to Assess the Danger of Contagion in Interbank Markets written by Christian Upper and published by . This book was released on 2007 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Researchers at central banks increasingly turn to counterfactual simulations to estimate the danger of contagion owing to exposures in the interbank loan market. The present paper summarises the findings of such simulations, provides a critical assessment of the modelling assumptions on which they are based, and discusses their use in financial stability analysis. On the whole, such simulations suggest that contagious defaults are unlikely, but cannot be fully ruled out, at least in some countries. If contagion does take place, then it could lead to the breakdown of a substantial fraction of the banking system, thus imposing high costs to society. However, when interpreting these results, one has to bear in mind the potential bias caused by the very strong assumptions underlying the simulations. While robustness tests indicate that the models might be able to correctly predict whether or not contagion could be an issue and, possibly, also identify critical institutions, they are less suited for stress testing or for the analysis of policy options in crises, primarily due to their lack of behavioural foundations. Going forward, more work is needed on how to attach probabilities to the individual scenarios and on the microfoundations of the models.

Download or read book Filling in the Blanks written by Kartik Anand and published by . This book was released on with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: The network pattern of financial linkages is important in many areas of banking and finance. Yet bilateral linkages are often unobserved, and maximum entropy serves as the leading method for estimating counterparty exposures. This paper proposes an efficient alternative that combines information-theoretic arguments with economic incentives to produce more realistic interbank networks that preserve important characteristics of the original interbank market. The method loads the most probable links with the largest exposures consistent with the total lending and borrowing of each bank, yielding networks with minimum density. When used in a stress-testing context, the minimum density solution overestimates contagion, whereas maximum entropy underestimates it. Using the two benchmarks side by side defines a useful range that bounds the cost of systemic stress present in the true interbank network when counterparty exposures are unknown.

Download or read book CoMap Mapping Contagion in the Euro Area Banking Sector written by Mehmet Ziya Gorpe and published by International Monetary Fund. This book was released on 2019-05-10 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a novel approach to investigate and model the network of euro area banks’ large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We develop a Contagion Mapping model fully calibrated with bank-level data to study the contagion potential of an exogenous shock via credit and funding risks. We find that tipping points shifting the euro area banking system from a less vulnerable state to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics.

Download or read book Assessing Financial Contagion in the Interbank Market written by Paolo Emilio Mistrulli and published by . This book was released on 2007 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Insights in European Interbank Network Contagion written by Dionisis Philippas and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Purpose - We analyse the importance of regulatory requirements and interbank connections to financial stability by looking at a large number of European and UK banks.Design/Methodology - We model interbank contagion using insights from the Susceptible Infected Recovered model. We construct scale-free networks with preferential attachment and growth, applying simulated interbank data to capture the size and scale of connections in the network. We proceed to shock these networks per country and we perform Monte Carlo simulations to calculate mean total losses and duration of infection. Finally, we examine the regulatory requirement effects of contagion in terms of Core Tier 1 Capital Ratios for affected banking systems.Findings - We find that shocks in smaller banking systems may cause smaller overall losses but tend to persist longer, leading to important policy implications for crisis containment.Originality - We infer the interbank domestic and cross border exposures of banks employing the RAS algorithm. We use an extend sample of 169 European banks, that also captures effects on the UK as well as the Eurozone interbank market. Finally, we provide evidence of the effects of contagion on each bank, allowing for bank heterogeneity by comparing the bank's relative financial strength to the strength of the contagion that is modelled by the number and the volume of bilateral connections.

Download or read book Network Structure Indirect Losses and Financial Contagion in Inhomogeneous Stochastic Interbank Networks written by Nadine Mari Walters and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We introduce new tiered bank network structures, allowing for many di erent bank sizes, and compare risk propagation in these structures with the well-known Erd©)℗+os-R©2℗þenyi, assortative and disassortative structures. The simulations indicate that in the presence of market sentiment and liquidity e ects, the details of the structures in combination with the distribution of assets, the system℗þs interconnectedness and its size are crucially important in determining the risk of major capital loss in the network. In fact, even networks with similar levels of tiering can behave markedly di erent depending on these factors. In the absence of market sentiment and liquidity e ects, the di erences between the network structures is smaller. This highlights the importance of considering the network structure in conjunction with network characteristics, market sentiment and liquidity e ects. This implies that policy actions aimed at influencing a network℗þs characteristics must consider all aspects unique to that particular system and cannot follow a 'one-size-fits-all℗þ approach. The framework is illustrated with an application using South African bank balance sheet data. Spikes in simulated assessments of systemic risk agree closely with spikes in documented subjective assessments of this risk. This indicates that network models can be useful for monitoring systemic risk levels. In a large network setting, the study then considers the fraction of nodes that default in stochastic, inhomogeneous financial networks following an initial shock to the system. Results for deterministic sequences of networks are generalized to stochastic networks to account for interbank lending relationships that change frequently. A general class of inhomogeneous stochastic networks is proposed for use in systemic risk research, and we illustrate how results that hold for Erd©)℗+os-R©2℗þenyi networks can be generalized to the proposed network class. The network structure of a system is determined by interbank lending behaviour which may vary according to the relative sizes of the banks. We then use the results to illustrate how network structure influences the systemic risk inherent in large banking systems.

Download or read book Computational Network Theory written by Matthias Dehmer and published by John Wiley & Sons. This book was released on 2015-05-04 with total page 278 pages. Available in PDF, EPUB and Kindle. Book excerpt: Diese umfassende Einführung in die rechnergestützte Netzwerktheorie als ein Zweig der Netzwerktheorie baut auf dem Grundsatz auf, dass solche Netzwerke als Werkzeuge zu verstehen sind, mit denen sich durch die Anwendung rechnergestützter Verfahren auf große Mengen an Netzwerkdaten Hypothesen ableiten und verifizieren lassen. Ein Team aus erfahrenden Herausgebern und renommierten Autoren aus der ganzen Welt präsentieren und erläutern eine Vielzahl von repräsentativen Methoden der rechnergestützten Netzwerktheorie, die sich aus der Graphentheorie, rechnergestützten und statistischen Verfahren ableiten. Dieses Referenzwerk überzeugt durch einen einheitlichen Aufbau und Stil und eignet sich auch für Kurse zu rechnergestützten Netzwerken.

Download or read book Handbook on Systemic Risk written by Jean-Pierre Fouque and published by Cambridge University Press. This book was released on 2013-05-23 with total page 993 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook on Systemic Risk, written by experts in the field, provides researchers with an introduction to the multifaceted aspects of systemic risks facing the global financial markets. The Handbook explores the multidisciplinary approaches to analyzing this risk, the data requirements for further research, and the recommendations being made to avert financial crisis. The Handbook is designed to encourage new researchers to investigate a topic with immense societal implications as well as to provide, for those already actively involved within their own academic discipline, an introduction to the research being undertaken in other disciplines. Each chapter in the Handbook will provide researchers with a superior introduction to the field and with references to more advanced research articles. It is the hope of the editors that this Handbook will stimulate greater interdisciplinary academic research on the critically important topic of systemic risk in the global financial markets.

Download or read book Cross Border Financial Surveillance written by Marco A Espinosa-Vega and published by International Monetary Fund. This book was released on 2010-04-01 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Effective cross-border financial surveillance requires the monitoring of direct and indirect systemic linkages. This paper illustrates how network analysis could make a significant contribution in this regard by simulating different credit and funding shocks to the banking systems of a number of selected countries. After that, we show that the inclusion of risk transfers could modify the risk profile of entire financial systems, and thus an enriched simulation algorithm able to account for risk transfers is proposed. Finally, we discuss how some of the limitations of our simulations are a reflection of existing information and data gaps, and thus view these shortcomings as a call to improve the collection and analysis of data on cross-border financial exposures.

Download or read book CoMap Mapping Contagion in the Euro Area Banking Sector written by Mehmet Ziya Gorpe and published by International Monetary Fund. This book was released on 2019-05-13 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a novel approach to investigate and model the network of euro area banks’ large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We develop a Contagion Mapping model fully calibrated with bank-level data to study the contagion potential of an exogenous shock via credit and funding risks. We find that tipping points shifting the euro area banking system from a less vulnerable state to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics.

Download or read book Econometrics for Financial Applications written by Ly H. Anh and published by Springer. This book was released on 2017-12-18 with total page 1089 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book addresses both theoretical developments in and practical applications of econometric techniques to finance-related problems. It includes selected edited outcomes of the International Econometric Conference of Vietnam (ECONVN2018), held at Banking University, Ho Chi Minh City, Vietnam on January 15-16, 2018. Econometrics is a branch of economics that uses mathematical (especially statistical) methods to analyze economic systems, to forecast economic and financial dynamics, and to develop strategies for achieving desirable economic performance. An extremely important part of economics is finances: a financial crisis can bring the whole economy to a standstill and, vice versa, a smart financial policy can dramatically boost economic development. It is therefore crucial to be able to apply mathematical techniques of econometrics to financial problems. Such applications are a growing field, with many interesting results – and an even larger number of challenges and open problems.

Download or read book Cross Border Interbank Contagion Risk Analysis written by Roman Matousek and published by Cambridge University Press. This book was released on 2020-07-30 with total page 101 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Element provides a detailed overview of the structural changes in the Asia-Pacific region from the early 2000s onwards. It reviews the most relevant literature on this important topic. The following two research areas are explored: first, by deploying visual network analysis (VNA), we analyse cross-border interbank claims and liabilities of the individual countries located in the Asia-Pacific region. Such an analysis evaluates interbank exposures to systematically important banks within the specific market. The important advantage of VNA is that it allows us to examine the 'hierarchical' cross-country interbank contagion risk that seems to have been neglected in similar studies. Secondly, we evaluate the contagion risk to the individual countries spreading from the financial centres in Hong Kong, Singapore, Tokyo, New York and London. The analysis unveils links and statistical factors that could be used as a key tool for detecting the potential triggers of systemic risk.

Download or read book Banking Systems Simulation written by Stefano Zedda and published by John Wiley & Sons. This book was released on 2017-04-03 with total page 262 pages. Available in PDF, EPUB and Kindle. Book excerpt: Presents information sources and methodologies for modeling and simulating banking system stability Combining both academic and institutional knowledge and experience, Banking Systems Simulation: Theory, Practice, and Application of Modeling Shocks, Losses, and Contagion presents banking system risk modeling clearly within a theoretical framework. Written from the global financial perspective, the book explores single bank risk, common bank exposures, and contagion, and how these apply on a systemic level. Zedda approaches these simulation methods logically by providing the basic building blocks of modeling and simulation, and then delving further into the individual techniques that make up a systems model. In addition, the author provides clear and detailed explanations of the foundational research into the mathematical and legal concepts used to analyze banking risk problems, measures and data for representing the main banking risk sources, and the major problems researchers are likely to encounter. There are numerous software descriptions throughout, with references and tools to help readers gain a proper understanding of the presented techniques and possibly develop new applications and research. The book concludes with an appendix that features real-world datasets and models. In addition, this book: • Provides a comprehensive overview of methods for analyzing models and simulating risk for banking and financial systems • Provides a clear presentation of the technical and legal concepts used in banking regulation • Presents unique insights from an expert’s perspective, with specific coverage of assessing risks and developing what-if analyses at the systems level • Concludes with a discussion of applications, including banking systems regulation what-if tests, cost-benefit analysis, evaluations of banking systems stability effects on public finances, dimensioning, and risk-based contributions for Deposit Guarantee Schemes (DGS) and Resolution Funds Banking Systems Simulation: Theory, Practice, and Application of Modeling Shocks, Losses, and Contagion is ideal for banking researchers focusing on computational methods of analysis as well as an appropriate reference for graduate-level students in banking, finance, and computational methods. Stefano Zedda is Researcher in Financial Mathematics at the University of Cagliari in Italy and qualified as associate professor in banking and corporate finance. His research is mainly focused on quantitative analyses for banking and finance, with a particular focus on banking systems modeling and simulation. In 2008, Zedda developed the mathematical modeling and software implementation of the Systemic Model for Banking Originated Losses (SYMBOL), further developed during his activity at the European Commission. The Commission subsequently adopted it as a standard tool for testing banking regulation proposals. Stefano Zedda’s research interests include banking, financial mathematics, and statistics, specifically simulation of banking and financial systems stability, banking regulation impact assessment, and interactive agent simulation.

Download or read book Interconnectedness and Contagion Analysis A Practical Framework written by Mrs.Jana Bricco and published by International Monetary Fund. This book was released on 2019-10-11 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: The analysis of interconnectedness and contagion is an important part of the financial stability and risk assessment of a country’s financial system. This paper offers detailed and practical guidance on how to conduct a comprehensive analysis of interconnectedness and contagion for a country’s financial system under various circumstances. We survey current approaches at the IMF for analyzing interconnectedness within the interbank, cross-sector and cross-border dimensions through an overview and examples of the data and methodologies used in the Financial Sector Assessment Program. Finally, this paper offers practical advice on how to interpret results and discusses potential financial stability policy recommendations that can be drawn from this type of in-depth analysis.

Download or read book Crisis Transmission in the Global Banking Network written by Galina Hale and published by International Monetary Fund. This book was released on 2016-04-12 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the transmission of financial sector shocks across borders through international bank connections. For this purpose, we use data on long-term interbank loans among more than 6,000 banks during 1997-2012 to construct a yearly global network of interbank exposures. We estimate the effect of direct (first-degree) and indirect (second-degree) exposures to countries experiencing systemic banking crises on bank profitability and loan supply. We find that direct exposures to crisis countries squeeze banks' profit margins, thereby reducing their returns. Indirect exposures to crisis countries enhance this effect, while indirect exposures to non-crisis countries mitigate it. Furthermore, crisis exposures have real effects in that they reduce banks' supply of domestic and cross-border loans. Our results, based on a large global sample, support the notion that interconnected financial systems facilitate shock transmission.