 Simulating fire sales in a system of banks and asset managersSusanna Calimani, Grzegorz Halaj and Dawid Żochowski Journal of Banking & Finance, 2022, vol. 138, issue C Abstract: We develop an agent-based model of traditional banks and asset managers to investigate the contagion risk related to fire sales and balance sheet interactions. We take a structural approach to the price formation in fire sales as in Bluhm et al. (2014) and introduce a market clearing mechanism with endogenous formation of asset prices. We find that, first, banks which are active in both the interbank and securities markets act as plague-spreaders during financial distress. Second, higher bank capital requirements may aggravate contagion by creating incentives for banks to increase exposures in the interbank market, which also leads to lower levels of a voluntary capital buffer above the minimum capital requirement. Third, asset managers absorb small liquidity shocks, but they exacerbate contagion when their voluntary liquid buffers are fully utilised. Fourth, a system with larger and more interconnected agents is more prone to contagion risk stemming from funding shocks. Keywords: Fire sales; Contagion; Systemic risk; Asset managers; Agent-based model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:138:y:2022:i:c:s037842661930281x DOI: 10.1016/j.jbankfin.2019.105707 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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