Systemic Risk Mitigation in Financial Networks
Forthcoming in Journal of Economic Dynamics and Control
38 Pages Posted: 16 Jul 2013 Last revised: 5 Jun 2016
Date Written: June 23, 2015
Abstract
We propose a multi-period clearing framework, where the level of systemic risk is mitigated through provision of liquidity assistance. The interbank liability network evolves stochastically over time, and assets of defaulted banks are sold to qualified banks within the network through a first price sealed-bid auction. We find that policies targeting systemically important banks are more effective in core-periphery network structures, whereas those maximizing the total liquidity in the system are preferred in random network configurations. We assess sensitivity of systemic risk to variations in interbank liabilities as well as to their correlation structure.
Keywords: Systemic risk, mitigation strategies, clearing payments, financial networks
JEL Classification: C63, G21, G33
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Estimating Bilateral Exposures in the German Interbank Market: Is There a Danger of Contagion?
By Christian Upper and Andreas Worms
-
By Rodrigo Cifuentes, Gianluigi Ferrucci, ...
-
Risk Assessment for Banking Systems
By Helmut Elsinger, Alfred Lehar, ...
-
Systemic Risk in Financial Networks
By Larry Eisenberg and Thomas H. Noe
-
The Efficiency of Self-Regulated Payments Systems: Learning from the Suffolk System
-
Financial Interlinkages in the United Kingdom's Interbank Market and the Risk of Contagion
-
Interbank Exposures: An Empirical Examination of Systemic Risk in the Belgian Banking System
By Hans Degryse and Gregory Nguyen
-
Interbank Exposures: An Empirical Examination of Contagion Risk in the Belgian Banking System
By Hans Degryse and Gregory Nguyen