Contagion Risk in the Croatian Banking System

Marko Krznar

No 20, Working Papers from The Croatian National Bank, Croatia

Abstract: This paper explores systemic risk in the Croatian interbank market, focusing on interbank credit risk. In theory, bank contagion depends on the size and structure of the interbank market. It is found that the dimension of the Croatian interbank market is small and that it can be described as a multiple money centre structure, with bilateral exposures concentrated on a few big banks. In order to assess contagion risk in the banking system, simulations of idiosyncratic bank failures and macroeconomic shocks were performed. Because of the shallow domestic interbank market, the first order requirement for bank contagion due to an idiosyncratic failure is not fulfilled. This requirement is also not satisfied in the case of the exposures to foreign banks, although they five times exceed the level of the domestic interbank market. Bank contagion stemming from macroeconomic shocks, although theoretically possible, could only materialise in highly improbable scenarios.

Keywords: interbank exposures; bank contagion; idiosyncratic bank failure; macroeconomic shock (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:hnb:wpaper:20

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