Contagion Accounting

41 Pages Posted: 11 Dec 2020

See all articles by Iñaki Aldasoro

Iñaki Aldasoro

Bank for International Settlements (BIS)

Anne-Caroline Hüser

Bank of England

Christoffer Kok

European Central Bank (ECB)

Date Written: December, 2020


We provide a simple and tractable accounting-based stress-testing framework to assess loss dynamics in the banking sector, in a context of leverage targeting. Contagion can occur through direct interbank exposures, and indirect exposures due to overlapping portfolios with the associated price dynamics via fire sales. We apply the framework to three granular proprietary ECB datasets, including an interbank network of 26 large euro area banks as well as their overlapping portfolios of loans, derivatives and securities. A 5 percent shock to the price of assets held in the trading book leads to an initial loss of 30 percent of system equity and an additional loss of 1.3 percent due to fire sales spillovers. Direct interbank contagion is negligible in our analysis. Our findings underscore the importance of accurately estimating the price effects of fire sales.

JEL Classification: C63, G01, G18, G21

Suggested Citation

Aldasoro, Iñaki and Hüser, Anne-Caroline and Kok, Christoffer, Contagion Accounting (December, 2020). ECB Working Paper No. 20202499, Available at SSRN: or

Iñaki Aldasoro (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

Anne-Caroline Hüser

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Christoffer Kok

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics