Banks and non-banks stressed: liquidity shocks and the mitigating role of insurance companies

Matthias Sydow, Gábor Fukker, Tomasz Dubiel-Teleszynski, Fabio Franch, Helmut Gründl, Debora Miccio, Michela Pellegrino, Sébastien Gallet, Stelios Kotronis, Sebastian Schlütter and Matteo Sottocornola

No 3000, Working Paper Series from European Central Bank

Abstract: This paper documents the extension of the system-wide stress testing framework of the ECB with the insurance sector for a more thorough assessment of risks to financial stability. The special nature of insurers is captured by the modelling of the liability side and its loss absorbing capacity of technical provisions as the main novel feature of the model. Leveraging on highly granular data and information on bilateral exposures, we assess the impact of liquidity and solvency shocks and demonstrate how a combined endogenous reactions of banks, investment funds and insurance companies can further amplify losses in the financial system. The chosen hypothetical scenario and subsequent simulation results show that insurers’ ability to transfer losses to policyholders reduces losses for the entire financial sector. Furthermore, beyond a certain threshold, insurance companies play a crucial role in mitigating both direct and indirect contagion. JEL Classification: D85, G01, G21, G23, L14

Keywords: contagion; financial stability; fire sales; insurance companies; interconnectedness; stress test (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fdg and nep-rmg
Note: 448291
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3000~33d4540ff4.en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20243000

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().