Centrality-based Capital Allocations

Adrian Alter, Ben Craig and Peter Raupach ()

No 2014/237, IMF Working Papers from International Monetary Fund

Abstract: We look at the effect of capital rules on a banking system that is connected through correlated credit exposures and interbank lending. The rules, which combine individual bank characteristics and interconnectivity measures of interbank lending, are to minimize a measure of system-wide losses. Using the detailed German Credit Register for estimation, we find capital rules based on eigenvectors to dominate any other centrality measure, followed by closeness. Compared to the baseline case, capital reallocation based on the Adjacency Eigenvector saves about 15% in system losses as measured by expected bankruptcy costs.

Keywords: WP; banking system; interbank market; interconnectedness; systemic risk; SIFIs; network analysis; capital allocation; bank default; capital requirement; equity holder; IB exposure; bank PDs; default probability; way bank; interbank asset; capital reallocation; bank equity holder; Loans; Credit; Credit risk; Commercial banks; Interbank markets; Global (search for similar items in EconPapers)
Pages: 40
Date: 2014-12-24
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Citations: View citations in EconPapers (8)

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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 (2015)
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