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Contagion at the interbank market with stochastic LGD

Christoph Memmel, Angelika Sachs and Ingrid Stein ()

No 2011,06, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank

Abstract: This paper investigates contagion at the German interbank market under the assumption of a stochastic loss given default (LGD). We combine a unique data set about the LGD of interbank loans with data about interbank exposures. We find that the frequency distribution of the LGD is u-shaped. Under the assumption of a stochastic LGD, simulation results show a more fragile banking system than under the assumption of a constant LGD. There are three types of banks concerning their tendency to trigger contagion: banks with strongly varying impact, banks whose impact is relatively constant, and banks with no direct impact.

Keywords: interbank market; contagion; stochastic LGD (search for similar items in EconPapers)
JEL-codes: D53 E47 G21 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban and nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp2:201106

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