The joint impact of bankruptcy costs, fire sales and cross-holdings on systemic risk in financial networks
- The paper presents a comprehensive model of a banking system that integrates network effects, bankruptcy costs, fire sales, and cross-holdings. For the integrated financial market we prove the existence of a price-payment equilibrium and design an algorithm for the computation of the greatest and the least equilibrium. The number of defaults corresponding to the greatest price-payment equilibrium is analyzed in several comparative case studies. These illustrate the individual and joint impact of interbank liabilities, bankruptcy costs, fire sales and cross-holdings on systemic risk. We study policy implications and regulatory instruments, including central bank guarantees and quantitative easing, the significance of last wills of financial institutions, and capital requirements.
| Author: | Stefan Weber, Kerstin WeskeORCiD |
|---|---|
| URN: | urn:nbn:de:bsz:960-opus4-30147 |
| DOI: | https://doi.org/10.25968/opus-3014 |
| DOI original: | https://doi.org/10.1186/s41546-017-0020-9 |
| Parent Title (English): | Probability, Uncertainty and Quantitative Risk |
| Document Type: | Article |
| Language: | English |
| Year of Completion: | 2017 |
| Publishing Institution: | Hochschule Hannover |
| Release Date: | 2023/11/20 |
| Tag: | Bankruptcy costs; Cross-holdings; Financial contagion; Financial network; Fire sales; Systemic risk |
| Volume: | 2 |
| Article Number: | 9 |
| Page Number: | 38 |
| Link to catalogue: | 1871786185 |
| Institutes: | Fakultät IV - Wirtschaft und Informatik |
| DDC classes: | 330 Wirtschaft |
| Licence (German): |  Creative Commons - CC BY - Namensnennung 4.0 International |
