Cross-border interbank contagion in the European banking sector

Silvia Gabrieli (), Dilyara Salakhova and G. Vuillemey

Working papers from Banque de France

Abstract: This paper studies the scope for cross-border contagion in the European banking sector using true bilateral exposure data. Using a model of sequential solvency and liquidity cascades in networks, we analyze geographical patterns of loss propagation from 2008 to 2012. We study the distribution of contagion outcomes after a common shock and an exogenous bank default over simulated networks of actual long- and short-term claims. We exploit a novel and unique dataset of money market transactions estimated from TARGET2 payments data. Our results show the critical impact of the underlying network structure on the propagation of losses. An econometric analysis of the determinants of contagion shows that the position of a bank in the network and its exposure to the riskiest counterparties are significantly correlated with default outcomes, behind its own financial ratios.

Keywords: Contagion; Interbank market; Stress Testing; Liquidity Hoarding; Counterparty Risk. (search for similar items in EconPapers)
JEL-codes: F36 G01 G21 G28 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2015
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Cross-border interbank contagion in the European banking sector (2019)
Journal Article: Cross-border interbank contagion in the European banking sector (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:545

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