Contagion in Financial Networks: A Threat Index

Gabrielle Demange

No 5307, CESifo Working Paper Series from CESifo

Abstract: Interbank claims are a concern to regulators as they might facilitate the dissemination of defaults and generate spill-over effects. Building on a simple model, this paper introduces a measure of the spill-over effects that a bank generates when it defaults. The measure is based on an explicit criterion, the aggregate debt repayments, and is bank’s specific, affected by the bank’s characteristics and links to other banks. Such measure can be useful to a regulator to determine in which banks cash should be injected during a default episode or to evaluate the impact of raising capital before the occurrence of default. The approach applies more generally to a system of entities that are linked through financial claims. This is illustrated to evaluate the consolidated foreign claims of 10 EU countries.

Keywords: default; contagion; systemic risk; financial linkages; intervention policy (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Contagion in Financial Networks: A Threat Index (2018)
Working Paper: Contagion in Financial Networks: A Threat Index (2018)
Working Paper: Contagion in Financial Networks: A Threat Index (2018)
Working Paper: Contagion in financial networks: a threat index (2016)
Working Paper: Contagion in financial networks: a threat index (2016)
Working Paper: Contagion in financial networks: A threat index (2012)
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