The systemic implications of bail-in: a multi-layered network approach
Christoffer Kok (),
Grzegorz Halaj (),
Cristian Perales and
Anton van der Kraaij
No 2010, Working Paper Series from European Central Bank
We present a tractable framework to assess the systemic implications of bail-in. To this end, we construct a multi-layered network model where each layer represents the securities cross holdings of a specific seniority among the largest euro area banking groups. On this basis, the bail-in of a bank can be simulated to identify the direct contagion risk to the other banks in the network. We find that there is no direct contagion to creditor banks. Spill-overs also tend to be small due to low levels of securities cross-holdings in the interbank network. We also quantify the impact of a bail-in on the different liability holders. In the baseline scenario, shareholders and subordinated creditors are always affected by the bail-in, senior unsecured creditors in 75% of the cases. Finally, we compute the effect of the bail-in on the network topology in each layer. We find that a bail-in significantly reshapes interbank linkages within specific seniority layers. JEL Classification: G01, G18, G21, C63
Keywords: bail-in; financial networks; policy simulation; resolution regimes; systemic risk (search for similar items in EconPapers)
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Journal Article: The systemic implications of bail-in: A multi-layered network approach (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172010
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