Bank lending and systemic risk: A financial-real sector network approach with feedback
Thiago Silva (),
Michel da Silva Alexandre and
Benjamin Tabak ()
Journal of Financial Stability, 2018, vol. 38, issue C, 98-118
We simulate shocks to the real sector and evaluate how the financial system reacts and amplifies these events using unique Brazilian loan-level data between banks and banks and firms. Our analysis considers the feedback behavior that exists between the financial and real sectors through a micro-level financial accelerator. We find a strong “network effect” in which the network structure can either attenuate or amplify shocks from the real sector and thus plays a major role in contagion processes. We also find that government-owned banks are the most susceptible banks to receiving shocks from firms of any economic sector. There is empirical evidence to support the claim that more diversified portfolios of banks contribute to higher sector riskiness levels. Our results suggest that systemic risk models should account for the interconnectedness among economic agents—such as the interbank and real and financial sector linkages—in a multilayer approach. Overall, we show that the feedback between the real and financial sector matters in systemic risk estimation and most models that do not take into consideration could be severely underestimating systemic risk.
Keywords: Systemic risk; Feedback; Financial accelerator; Financial network; Transmission channel; Contagion (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:38:y:2018:i:c:p:98-118
Access Statistics for this article
Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman
More articles in Journal of Financial Stability from Elsevier
Bibliographic data for series maintained by Haili He ().