Contagion of bank failures through the interbank network in Argentina

Emiliano Carlevaro

No 4631, Asociación Argentina de Economía Política: Working Papers from Asociación Argentina de Economía Política

Abstract: Capital regulation on banks aims to reduce the probability of failures. In theory, the effect of capital buffers in preventing failures could depend on the linkages among financial institutions. These linkages are nevertheless usually omitted in empirical models. I study the effectiveness of capital regulation in preventing failures using a spatial autoregressive probit model, which accommodates links among banks and feedback effects. I study the Argentinian banking crisis of 2001 for which I build the complete interbank network. By allowing linkages between banks, estimates from the spatial model show that capital regulation is 50% less effective than estimates of a model in which banks are not interconnected.

JEL-codes: C21 E44 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2023-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-net and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:aep:anales:4631

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