This paper studies the implications of cross-border financial integration for financial stability when banks' loan portfolios adjust endogenously. Banks can be subject to sectoral and aggregate domestic shocks. After integration they can share these risks in a complete interbank market. When...

We analyze what macroeconomic shocks affect the soundness of the German banking system and how this, in turn, feeds back into the macroeconomic environment. Recent turmoils on the international financial markets have shown very clearly that assessing the degree to which banks are vulnerable to...

This paper assesses the impact of a certain structure of interbank exposures on the stability of a stylized financial system. Given a certain balance sheet structure of financial institutions, a large number of valid matrices of interbank exposures is created by a random generator. Assuming a...

We use a compound option-based structural credit risk model to infer a term structure of banking crisis risk from market data on bank stocks in daily frequency. Considering debt service payments with different maturities this term structure assigns a separate estimator for short- and long-term...

Size matters in banking. In this paper, we explore whether shocks originating at large banks affect the probability of distress of smaller banks and thus the stability of the banking system. Our analysis proceeds in two steps. In a first step, we follow Gabaix (2008a) and construct a measure of...

Carrying out interbank contagion simulations for the German banking sector for the period from the first quarter of 2008 to the second quarter of 2011, we obtain the following results: (i) The system becomes less vulnerable to direct interbank contagion over time. (ii) The loss distribution for...

While net settlement systems make more efficient use of liquidity than gross settlement systems, they are known to generate systemic risk. What does that tendency imply for the stability of the payments [or financial] system when the two settlement systems coexist? Do liquidity shortages induce...

This paper investigates contagion at the German interbank market under the assumption of a stochastic loss given default (LGD). We combine a unique data set about the LGD of interbank loans with data about interbank exposures. We find that the frequency distribution of the LGD is u-shaped. Under...

The paper presents a model where financial intermediaries invest in a safe and a risky, two-period asset -with aggregate and idiosyncratic shocks on tire risky asset. The realization of returns is privately observed by banks, which offer deposit contracts, with a promised return at t = 1, the...

By introducing a structure of the balance sheets of the banks, which takes into account their bilateral exposures in terms of stocks or lendings, we get a structural model for default analysis. This model allows distinguishing the exogenous and endogenous default dependence. We prove the...