EconPapers    
Economics at your fingertips  
 

Credit Contagion in Financial Markets: A Network-Based Approach

Matjaz Steinbacher (), Mitja Steinbacher () and Matej Steinbacher

MPRA Paper from University Library of Munich, Germany

Abstract: We propose a network-based model of credit contagion and examine the e�ects of idiosyncratic and systemic shocks to individual banks and the banking system. The banking system is built as a network in which banks are connected to each other through the interbank market. The microstructure captures the relation between debtors and creditors, and the macroeconomic events capture the sensitivity of the banks' �nancial strenght to macroeconomic events, such as housing. We have demonstrated that while idiosyncratic shocks do not have a potential to substantially disturb the banking system, macroeconomic events of higher magnitudes could be highly harmful, especially if they also spur contagion. In a concerted default of more banks, the stability of a banking system tends to decrease disproportionately. In addition, credit risk analysis is highly sensitive to the network topology and exhibits a nonlinear characteristic. Capital ratio and recovery rates are two additional factors that contribute to the stability of the �nancial system.

Keywords: credit contagion; network models; credit risk; structural models; fi�nancial stability; alpha-criticality index (search for similar items in EconPapers)
JEL-codes: C63 G01 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-fmk, nep-net and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/49616/1/MPRA_paper_49616.pdf original version (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:pra:mprapa:49616

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2023-11-11
Handle: RePEc:pra:mprapa:49616