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Insolvency and contagion in the Brazilian interbank market

Sergio R.S. Souza, Benjamin Tabak (), Thiago Silva () and Solange Guerra

Physica A: Statistical Mechanics and its Applications, 2015, vol. 431, issue C, 140-151

Abstract: This paper proposes a new way to model and analyze contagion in interbank networks. We use a unique dataset from the Brazilian financial system and include all active financial intermediaries. We show that the contagion chain has a short propagation path. We find that first-round contagion is generated only by banks and that medium-sized banks can generate contagion, which implies that size is not the sole determinant of importance within networks. Most vulnerable financial institutions are not banks. Finally, we compute a lower bound for the financial system expected losses in a 1-year horizon. The results contribute to the development of a financial stability-monitoring toolkit.

Keywords: Systemic risk; Contagion; Interbank market; Networks; Financial stability (search for similar items in EconPapers)
Date: 2015
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Working Paper: Insolvency and Contagion in the Brazilian Interbank Market (2013) Downloads
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DOI: 10.1016/j.physa.2015.03.005

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