Calibrating Limits for Large Interbank Exposures From a System-wide Perspective
We examine the role of imposing tighter limits on interbank exposures in reducing contagion and aggregate losses. In our model contagion risk arises as a result of the individual idiosyncratic failure of each bank in the banking system. Following Guerrero-Gomez and Lopez-Gallo (2004), we use a sequential default algorithm that is useful for tracing the path of contagion from a trigger bank to other banks during several contagion rounds. We test different types of limits on inter-SIB (systematically important banks) exposures, SIB to non-SIB exposures, and non-SIB to all other banks; and we study three different assumptions about banks’ behavioural responses under a stricter regulatory lending regime. We also “stress test” all banks within the banking system and extend the analysis on the benefits of using tighter limits in a fragile banking system. Calibrating the model to Mexican banking sector data, this network model shows that tighter limits for inter-SIB exposures are a useful tool for reducing contagion risk. Moreover, we find that tighter limits may lead to an increase in contagion risk under specific allocation assumptions
Year of publication: |
2022
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Authors: | Bátiz-Zuk, Enrique ; Lopez-Gallo, Fabrizio ; Martinez Jaramillo, Serafin ; Solorzano-Margain, Juan |
Publisher: |
[S.l.] : SSRN |
Description of contents: | Abstract [papers.ssrn.com] |
Saved in:
Extent: | 1 Online-Ressource |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | In: Journal of Financial Stability, Vol. 27, 2016 Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments April 30, 2015 erstellt Volltext nicht verfügbar |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014235426
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