The recent financial crisis proved that financial contagion could spread among countries resulting in disruptive effects. In this paper, by modeling and simulating banking system behavior and linkages across countries, we assess, based on data from the BIS and IMF, the possible outcome of...

In this paper we gauge the degree of interconnectedness and quantify the linkages between global and other systemically important institutions, and the global financial system. We document that the two groups and the financial system become more interconnected during the global financial crisis...

We develop a dynamic computational network model of the banking system where fire sales provide the amplification mechanism of financial shocks. Each period a finite number of banks offers a large, but finite, number of loans to households. Banks with excess liquidity also offer loans to other...

We propose an algorithm to model contagion in the interbank market via what we term the credit quality channel. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted via asset...

We propose a methodology for measuring the market-implied capital of banks by subtracting from the market value of equity (market capitalization) a credit-spread-based correction for the value of shareholders' default option. We show that without such a correction, the estimated impact of a...

This paper presents a new theory that explains why it is beneficial for banks to be highly interconnected and to engage in herding behavior. It shows that these two important causes of systemic risk are interdependent and thus cannot be considered in isolation. The reason is that banks have an...

We review heterogeneous agent-based models of financial stability and their application in stress tests. In contrast to the mainstream approach, which relies heavily on the rational expectations assumption and focuses on situations where it is possible to compute an equilibrium, this approach...

We develop a methodology to measure the capital shortfall of commercial banks in a market downturn, which we call stressed expected loss (SEL). We simulate a market downturn as a negative shock on interest rate and credit market risk factors that reflect the banks' market-sensitive assets. We...

Our paper investigates Indonesia's systemically important banks (SIBs) using theoretical approaches-CoVaR, marginal expected shortfall (MES), and SRISK-to compare with the Basel guidelines as benchmark. We use Indonesian banks' market and supervisory data over the 2008-2019 period. The research...