Interbank Risk Assessment – A Simulation Approach

23 Pages Posted: 21 Apr 2020

See all articles by Maximilian Jager

Maximilian Jager

University of Mannheim; University of Mannheim Graduate School of Economic and Social Sciences, Students

Thomas Siemsen

Ludwig Maximilian University of Munich (LMU)

Johannes Vilsmeier

European Central Bank (ECB); Deutsche Bundesbank

Date Written: April 20, 2020

Abstract

We introduce a novel simulation-based network approach, which provides full-fledged distributions of potential interbank losses. Based on those distributions we propose measures for (i) systemic importance of single banks, (ii) vulnerability of single banks, and (iii) vulnerability of the whole sector. The framework can be used for the calibration of macro-prudential capital charges, the assessment of systemic risks in the banking sector, and for the calculation of banks' interbank loss distributions in general. Our application to German regulatory data from End-2016 shows that the German interbank network was at that time in general resilient to the default of large banks, i.e. did not exhibit substantial contagion risk. Even though up to four contagion defaults could occur due to an exogenous shock, the system-wide 99.9% VaR barely exceeds 1.5% of banks' CET 1 capital. For single institutions, however, we found indications for elevated vulnerabilities and hence the need for a close supervision.

Keywords: Interbank contagion, credit risk, systemic risk, loss simulation

JEL Classification: G17, G21, G28

Suggested Citation

Jager, Maximilian and Siemsen, Thomas and Vilsmeier, Johannes, Interbank Risk Assessment – A Simulation Approach (April 20, 2020). Deutsche Bundesbank Discussion Paper No. 23/2020, Available at SSRN: https://ssrn.com/abstract=3581219

Maximilian Jager

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

University of Mannheim Graduate School of Economic and Social Sciences, Students ( email )

Mannheim
Germany

Thomas Siemsen

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Johannes Vilsmeier (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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