Interbank risk assessment: A simulation approach

Maximilian Jager, Thomas Siemsen and Johannes Vilsmeier

No 23/2020, Discussion Papers from Deutsche Bundesbank

Abstract: We introduce a novel simulation-based network approach, which provides full-edged distributions of potential interbank losses. Based on those distributions we propose measures for (i) systemic importance of single banks, (ii) vulnerability of single banks, and (iii) vulnerability of the whole sector. The framework can be used for the calibration of macro-prudential capital charges, the assessment of systemic risks in the banking sector, and for the calculation of banks' interbank loss distributions in general. Our application to German regulatory data from End-2016 shows that the German interbank network was at that time in general resilient to the default of large banks, i.e. did not exhibit substantial contagion risk. Even though up to four contagion defaults could occur due to an exogenous shock, the system-wide 99.9% VaR barely exceeds 1.5% of banks' CET 1 capital. For single institutions, however, we found indications for elevated vulnerabilities and hence the need for a close supervision.

Keywords: Interbank contagion; credit risk; systemic risk; loss simulation (search for similar items in EconPapers)
JEL-codes: G17 G21 G28 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cmp, nep-gen, nep-net, nep-ore and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:232020

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