Contagion in the interbank network: An epidemiological approach

Mervi Toivanen

No 19/2013, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: This paper analyses the importance of individual bank-specific factors on financial stability. First, we use a novel method to model the spreading of the contagion in the interbank network by implementing an epidemiologic model. Actual data on European banks is exploited with simulated scale-free networks. The average contagion affected 70% and 40% of European banks' total assets in 2007 and in 2010, respectively. Country-level results suggest that French, British, German and Spanish banks are the most contagious ones, whereas banks from Ireland, Greece and Portugal induce only limited negative effects. Secondly, cross-sectional panel estimations are performed to disentangle the leading indicators influencing the level of contagion. Bank clustering, large in-coming interbank loans and bank reputation are more prominent explanatory variables than the size or leverage. Finally, central banks' interventions reduce contagion only slightly.

Keywords: contagion; banks; Europe; interbank; epidemiology; panel regression (search for similar items in EconPapers)
JEL-codes: C15 G01 G21 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2013_019

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