Abstract

http://ssrn.com/abstract=2132152
 


 



Liquidity and Solvency Shocks in a Network Model of Systemic Risk: The Impact of Minimum Capital and Reserve Requirements


Andreas Krause


University of Bath

Simone Giansante


University of Bath - School of Management

August 19, 2012

25th Australasian Finance and Banking Conference 2012

Abstract:     
We analyze the impact minimal capital and reserve requirements have on bank failures arising from solvency and liquidity shortages in a banking system where banks are characterized by the amount of capital, cash reserves and their exposure to the interbank loan market as borrowers as well as lenders. A network of interbank lending is established that is used as a transmission mechanism for the failure of banks through the system. We find that the impact of minimum capital and reserve requirements is small and excess holdings work to a similar degree, suggesting that targeting capital requirements more carefully on specific banks can be more e ective than common minimum requirements for all banks.

Number of Pages in PDF File: 38

Keywords: interbank loans, network topology, banking crises, bank failure, banking regulation

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Date posted: August 22, 2012 ; Last revised: November 20, 2012

Suggested Citation

Krause, Andreas and Giansante, Simone, Liquidity and Solvency Shocks in a Network Model of Systemic Risk: The Impact of Minimum Capital and Reserve Requirements (August 19, 2012). 25th Australasian Finance and Banking Conference 2012. Available at SSRN: http://ssrn.com/abstract=2132152 or http://dx.doi.org/10.2139/ssrn.2132152

Contact Information

Andreas Krause
University of Bath ( email )
Claverton Down
Bath BA2 7AY
United Kingdom
+44 1225 383771 (Phone)
+44 1225 386473 (Fax)
HOME PAGE: http://www.bath.ac.uk/~mnsak/
Simone Giansante (Contact Author)
University of Bath - School of Management ( email )
Claverton Down
Bath, BA2 7AY
United Kingdom
HOME PAGE: http://people.bath.ac.uk/sg473/index.html
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