Banks Connectivity, Credit Risk Transfer and Stability of the Banking System

Julien Barre, Alain Raybaut and Dominique Torre ()

Brussels Economic Review, 2012, vol. 55, issue 1, 75-96

Abstract: Our dynamic model captures the network relations generated by credit risk transfer andsecuritization. Each bank determines its own level of risk according to fundamentals and the levelof risk of its environment, given the possibilities opened by credit risk transfer. The dynamics ofthe model is generated by the network structure of the interbank relations. A highly connectednetwork generates forces able to make the long term equilibrium of the bank industry dependanton initial conditions. Irregularity in the network can also explain that a final heterogeneity appearin the final situation of banks, even when their fundamentals were originally similar.

Keywords: Banking networks; Securitization; Financial crisis contagion (search for similar items in EconPapers)
JEL-codes: G10 G20 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Banks connectivity, credit risk transfer and stability of the banking system (2012)
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