Assessing Interbank Contagion Risk Using Consolidated Data

Xiaojun Li () and Shijun Dong ()
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Xiaojun Li: Shanghai University of International Business and Economics
Shijun Dong: Shanghai Lixin University of Accounting and Finance

International Advances in Economic Research, 2016, vol. 22, issue 4, No 5, 432 pages

Abstract: Abstract This study uses the maximum entropy method to estimate bilateral interbank exposure in order to simulate the contagion effect in the UK interbank market using consolidated data. Almost all existing studies use unconsolidated data, which could significantly distort the real contagion effect as the banking sectors of most countries are highly concentrated with most large banks owning a significant number of subsidiaries. The results show that exposure is much more severe using consolidated data, implying that some money center banks or systematically important banks were underestimated by the contagion model before the 2008 financial crisis.

Keywords: Entropy maximization; Systemic contagion; Consolidated information; G20 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s11294-016-9600-1

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