Contagion in the Interbank Market with Stochastic Loss Given Default

Christoph Memmel, Angelika Sachs and Ingrid Stein ()
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Angelika Sachs: LMU Munich

International Journal of Central Banking, 2012, vol. 8, issue 3, 177-206

Abstract: This paper investigates contagion in the German interbank market under the assumption of a stochastic loss given default (LGD). We combine a unique data set about the LGD of interbank loans with detailed data about interbank exposures. We find that the frequency distribution of the LGD is markedly U-shaped. Our simulations show that contagion in the German interbank market may happen. For the point in time under consideration, the assumption of a stochastic LGD leads on average to a more fragile banking system than under the assumption of a constant LGD.

JEL-codes: D53 E47 G21 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (20)

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