In this paper, we study the implications of diversification in the asset portfolios of banks for financial stability and systemic risk. Adding to the existing literature, we analyse this issue in a network model of the interbank market. We carry out a simulation study that determines the...

We introduce a novel simulation-based network approach, which provides full-edged distributions of potential interbank losses. Based on those distributions we propose measures for (i) systemic importance of single banks, (ii) vulnerability of single banks, and (iii) vulnerability of the whole...

We show that systemic risk in the banking sector breeds macroeconomic uncertainty. We develop a model of a production economy with a banking sector where financial constraints of banks can lead to disastrous banking panics. We find that a higher probability of a banking panic increases...

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...

We study the interplay between two channels of interconnectedness in the banking system. The first one is a direct interconnectedness, via a network of interbank loans, banks' loans to other corporate and retail clients, and securities holdings. The second channel is an indirect...

The recent financial crisis has led to the introduction of contingent convertible instruments (CoCos) in the capital framework for banks. Although CoCos can provide benefits, such as automatic recapitalization of troubled banks, their inherent risks raise questions about whether they increase...

We evaluate the abnormal returns of issuing and non-issuing banks around the announcement of Seasoned Equity Offerings (SEOs) and explore how the market reaction is influenced by aggregate systemic conditions and by the systemic risk contribution and exposure of banks. While we find evidence of...

This paper investigates fire sales triggered by regulatory cliff effects induced by the loss of Capital Requirements Regulation (CRR) compliance on covered bonds. The loss of CRR compliant status leads to banks holding these covered bonds to lose several regulatory advantages, one consequence...

We construct an empirical measure of expected network spillovers that arise through default cascades for the U.S. financial system for the period 2002-16. Compared to existing studies, we include a much larger cross section of U.S. financial firms that comprises all bank holding companies, all...

We present a tractable framework to assess the systemic implications of bail-in. To this end, we construct a multi-layered network model where each layer represents the securities cross holdings of a specific seniority among the largest euro area banking groups. On this basis, the bail-in of a...