Macroprudential policy instruments: a bulwark against interbank contagion risk

Les instruments de politique macroprudentielle: un rempart contre les risques de contagion interbancaire

Thibaut Piquard and Dilyara Salakhova

Bulletin de la Banque de France, 2018, issue 218, No 3

Abstract: Financial institutions are connected among themselves through multiple contracts: loans, bilateral security holdings, derivatives contracts, etc. In normal times, these relationships allow for risk-sharing. However, in times of stress, they turn into channels of shock propagation, through solvency default cascades, funding shortages and asset-fire sales. Macroprudential policy aims to mitigate these effects using different instruments, such as higher capital surcharges for systemic institutions.Public authorities monitor in particular financial interconnections by exploiting information on the bilateral relationships between financial institutions. They notably take these elements into account in the stress tests applied to the entire financial system.

JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2018
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