How Likely is Contagion in Financial Networks?

Paul Glasserman () and H. Peyton Young
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Paul Glasserman: Office of Financial Research
Authors registered in the RePEc Author Service: Zeynep Senyuz

No 13-06, Working Papers from Office of Financial Research, US Department of the Treasury

Abstract: Interconnections among financial institutions create potential channels for contagion and amplification of shocks to the financial system. We estimate the extent to which interconnections increase expected losses, with minimal information about network topology, under a wide range of shock distributions. Expected losses from network effects are small without substantial heterogeneity in bank sizes and a high degree of reliance on interbank funding. They are also small unless shocks are magnified by some mechanism beyond simple spillover effects; these include bankruptcy costs, fire sales, and mark-to-market revaluations of assets. We illustrate the results with data on the European banking system.

Keywords: systemic risk; contagion; financial network (search for similar items in EconPapers)
Pages: 35 pages
Date: 2013-06-21, Revised 2017-04-12
New Economics Papers: this item is included in nep-ban and nep-net
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:ofr:wpaper:13-06

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