On the Optimal Control of Interbank Contagion in the Euro Area Banking System

Released on by
preview-18

  • On the Optimal Control of Interbank Contagion in the Euro Area Banking System Book Detail

  • Author :
  • Release Date : 2021
  • Publisher :
  • Genre :
  • Pages :
  • ISBN 13 : 9789289945547
  • File Size : 91,91 MB
DOWNLOAD BOOK

On the Optimal Control of Interbank Contagion in the Euro Area Banking System by PDF Summary

Book Description: In this paper we present a methodology of model-based calibration of additional capital needed in an interconnected financial system to minimize potential contagion losses. Building on ideas from combinatorial optimization tailored to controlling contagion in case of complete information about an interbank network, we augment the model with three plausible types of fire sale mechanisms. We then demonstrate the power of the methodology on the euro area banking system based on a network of 373 banks. On the basis of an exogenous shock leading to defaults of some banks in the network, we find that the contagion losses and the policy authority's ability to control them depend on the assumed fire sale mechanism and the fiscal budget constraint that may or may not restrain the policy authorities from infusing money to halt the contagion. The modelling framework could be used both as a crisis management tool to help inform decisions on capital/liquidity infusions in the context of resolutions and precautionary recapitalisations or as a crisis prevention tool to help calibrate capital buffer requirements to address systemic risks due to interconnectedness.

Disclaimer: www.yourbookbest.com does not own On the Optimal Control of Interbank Contagion in the Euro Area Banking System books pdf, neither created or scanned. We just provide the link that is already available on the internet, public domain and in Google Drive. If any way it violates the law or has any issues, then kindly mail us via contact us page to request the removal of the link.