A Model of the Topology of the Bank-Firm Credit Network and Its Role as Channel of Contagion

Thomas Lux

No 19, FinMaP-Working Papers from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents

Abstract: This paper proposes a stochastic model of a bipartite credit network between banks and the non-bank corporate sector that encapsulates basic stylized facts found in comprehensive data sets for bank-firm loans for a number of countries. When performing computational experiments with this model, we find that it shows a pronounced non-linear behavior under shocks: The default of a single unit will mostly have practically no knock-on effects, but might lead to an almost full-scale collapse of the entire system in a certain number of cases. The dependency of the overall outcome on firm characteristics like size or number of loans seems fuzzy. Distinguishing between contagion due to interbank credit and due to joint exposures to counterparty risk via loans to firms, the later channel appears more important for contagious spread of defaults.

Keywords: credit network; contagion; interbank network (search for similar items in EconPapers)
JEL-codes: D83 D85 G21 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ban, nep-cmp, nep-net and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fmpwps:19

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