Liquidity contagion with a “first-in/first-out†seniority of claims

Edoardo Gaffeo, Lucio Gobbi and Massimo Molinari

Economics Bulletin, 2019, vol. 39, issue 4, 2572-2579

Abstract: Building upon Lee (2013), this paper puts forward a methodological issue and presents a simple numerical example showing that the extent of systemic liquidity shortages due to a contagious funding run is strictly dependent on the seniority assigned to the different categories of claimants wishing to withdraw funds from financial intermediaries. In more detail, we find that a clearing payment algorithm based on the priority of interbank debt over depositors is found to potentially underestimate such liquidity shortages, if compared to a seniority rule working the other way round. This aspect may be of interest for supervisors implementing macro-prudential stress-testing exercises.

Keywords: Financial contagion; Seniority of payments; Liquidity shortages (search for similar items in EconPapers)
JEL-codes: C6 G2 (search for similar items in EconPapers)
Date: 2019-11-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I4-P240.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-18-00991

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().