Centrality-based capital allocations

Adrian Alter, Ben Craig and Peter Raupach ()

No 03/2015, Discussion Papers from Deutsche Bundesbank

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 14.6% in system losses as measured by expected bankruptcy costs.

Keywords: Capital Requirements; Centrality Measures; Contagion; Financial Stability (search for similar items in EconPapers)
JEL-codes: C15 C81 G21 G28 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ban and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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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:zbw:bubdps:032015

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