Measuring Capital at Risk in the UK banking sector: a microstructural network approach
Giovanni Covi (),
James Brookes () and
Charumathi Raja ()
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James Brookes: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Charumathi Raja: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
No 983, Bank of England working papers from Bank of England
In this paper we construct and analyse the UK banking system’s Global Network of granular exposures which captures roughly 90% of the UK banking system’s total assets for the period 2018 Q1 to 2021 Q4. We thus study the microstructure of UK banking system focusing on the role played by concentration risk and interconnectedness across sectors. We then estimate the quarterly evolution of expected losses (Capital at Risk) for the UK banking sector, and via Monte Carlo simulations the stochastic distribution of UK banks’ losses to study the severity and likelihood of tail-events (Conditional Capital at Risk). In the end, we provide insights on the impact of the Covid-19 pandemic on UK banking system’s loss distribution by decomposing the sources of average and tail risks.
Keywords: Financial network; systemic risk; stress testing; Covid-19 pandemic. (search for similar items in EconPapers)
JEL-codes: D85 G21 G32 L14 (search for similar items in EconPapers)
Pages: 68 pages
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-net and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0983
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