Centrality-based Capital Allocations

Adrian Alter, Ben Craig and Peter Raupach ()

No 1501, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper looks at the effect of capital rules on a banking system that is connected through correlated credit exposures and interbank lending. Keeping total capital in the system constant, the reallocation rules, which combine individual bank characteristics and interconnectivity measures of interbank lending, are to minimize a measure of systemwide losses. Using the detailed German Credit Register for estimation, we find that capital rules based on eigenvectors dominate any other centrality measure, saving about 15 percent in expected bankruptcy costs.

Keywords: interbank connectivity; credit exposures; capital requirements; banking system; bank contagion; network centrality measure; bankruptcy costs; systemic risk (search for similar items in EconPapers)
JEL-codes: C15 C81 G21 G28 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-02-13
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Centrality-Based Capital Allocations (2015)
Working Paper: Centrality-based capital allocations (2015)
Working Paper: Centrality-based Capital Allocations (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1501

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DOI: 10.26509/frbc-wp-201501

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