Interbank Exposure: An Empirical Examination of Systemic Risk in the Belgian Banking System

CentER Discussion Paper No. 2004-04

53 Pages Posted: 24 Jun 2004

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Gregory Nguyen

National Bank of Belgium - Research Department

Date Written: 2004

Abstract

Robust (cross-border) interbank markets are important for the well functioning of modern financial systems. Yet, a network of interbank exposures may lead to domino effects following the event of an initial bank failure. The structure of the interbank market is a potential important driving factor in the risk and impact of interbank contagion. We investigate the evolution of contagion risk for the Belgian banking system over the period 1993-2002 using detailed information on aggregate interbank exposures of individual banks and on large bilateral interbank exposures. We find that a change from a complete structure (where all banks have symmetric links) towards a multiple money centre structure (where the money centres are symmetrically linked to some banks, which are themselves not linked together), as well as a more concentrated banking market have decreased the risk and impact of contagion. Moreover, an increase in the proportion of cross-border interbank assets has lowered the risk and impact of local contagion. Yet, this reduction was probably accompanied by an increase in contagion risk generated by foreign banks, although even here the contagion risk appears fairly limited.

Keywords: Banking systems, risk, stability, monetary integration

JEL Classification: G15; G20

Suggested Citation

Degryse, Hans and Nguyen, Gregory, Interbank Exposure: An Empirical Examination of Systemic Risk in the Belgian Banking System (2004). CentER Discussion Paper No. 2004-04. Available at SSRN: https://ssrn.com/abstract=556944 or http://dx.doi.org/10.2139/ssrn.556944

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Gregory Nguyen

National Bank of Belgium - Research Department ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

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