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Interconnectedness is an inherent feature of the modern financial system. While it contributes to efficiency of financial services, it also creates structural vulnerabilities: pernicious shock transmission and amplification impacting banks' capitalization. This has recently been seen during the...
Persistent link: https://www.econbiz.de/10014278677
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...
Persistent link: https://www.econbiz.de/10012384482
We develop an agent-based model of traditional banks and asset managers to investigate the contagion risk related to fire sales and balance sheet interactions. We take a structural approach to the price formation in fire sales as in Bluhm et al. (2014) and introduce a market clearing mechanism...
Persistent link: https://www.econbiz.de/10012163949
We study portfolio compression, a procedure that removes cycles of liabilities in a financial network. We analyze the effect of compression on social welfare and the banks' incentives to accept a compression proposal. Regarding social welfare, we show that, contrary to conventional wisdom,...
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Banks lend more to banks that are similar to them. Using data from the German credit register and proprietary … portfolio, which do not obtain credit from dissimilar peers. …
Persistent link: https://www.econbiz.de/10014320321
-space methods, we model latent macro-financial and credit risk components for a large data setcomprising the U.S., the EU-27 area … ('thermometers')and forward looking indicators of financial distress and the likelihood of financial melt-down. We find that credit …
Persistent link: https://www.econbiz.de/10011382067
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