Contagion in Financial Networks: A Threat Index
Copyright policy )Contagion in Financial Networks: A Threat Index
This paper proposes to measure the spillover effects that cross liabilities generate on the magnitude of default in a system of financially linked institutions. Based on a simple model and an explicit criterion—the aggregate debt repayments—the measure is defined for each institution, affected by its characteristics and links to others. These measures—one for each institution—summarize relevant information on the interaction between the liabilities structure and the shocks to resources, and they can be useful to determine optimal intervention policies. The approach is illustrated to evaluate the consolidated foreign claims of 10 European Union countries. This paper was accepted by Amit Seru, finance.
G28, JEL: G - Financial Economics/G.G0 - General/G.G0.G01 - Financial Crises, 330, ddc:330, contagion of default,financial linkages,intervention policy, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, default, contagion, systemic risk, financial linkages, intervention policy, JEL: G - Financial Economics/G.G2 - Financial Institutions and Services/G.G2.G21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages, a threat index; financial linkages; systemic risk [bankruptcy; contagion; Contagion in financial networks], contagion, systemic risk, JEL: G - Financial Economics/G.G2 - Financial Institutions and Services/G.G2.G28 - Government Policy and Regulation, G21, G01, [SHS.ECO] Humanities and Social Sciences/Economics and Finance, default, intervention policy, contagion of default, financial linkages, jel: jel:G01, jel: jel:G21, jel: jel:G28
G28, JEL: G - Financial Economics/G.G0 - General/G.G0.G01 - Financial Crises, 330, ddc:330, contagion of default,financial linkages,intervention policy, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, default, contagion, systemic risk, financial linkages, intervention policy, JEL: G - Financial Economics/G.G2 - Financial Institutions and Services/G.G2.G21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages, a threat index; financial linkages; systemic risk [bankruptcy; contagion; Contagion in financial networks], contagion, systemic risk, JEL: G - Financial Economics/G.G2 - Financial Institutions and Services/G.G2.G28 - Government Policy and Regulation, G21, G01, [SHS.ECO] Humanities and Social Sciences/Economics and Finance, default, intervention policy, contagion of default, financial linkages, jel: jel:G01, jel: jel:G21, jel: jel:G28
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