Identification and assessment of systemic risks in financial networks: Modelling fire sales from regulatory cliff effects

Arbeitspapier

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 being a lower solvency. In our analysis, following the loss of CRR compliance, banks sell off their covered bonds in a fire sale, in an attempt to return to their initial solvency, resulting in losses of equity for the system as a whole. Further, we find that, for price impacts larger than a critical threshold, even small shocks lead to explosive fire sales and large losses of equity. While these losses can be averted if the banks allow their solvency levels to fall temporarily, other regulations, such as those relating to large exposures to other banks, could still trigger similar fire sales.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Danmarks Nationalbank Working Papers ; No. 117

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Financial Markets: Government Policy and Regulation ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Thema: Fire Sales ; Systemic Risk ; Covered Bonds ; Regulation

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Brøgger, Andreas ; Cokayne, Graeme
• Ereignis: Veröffentlichung
• (wer): Danmarks Nationalbank
• (wo): Copenhagen
• (wann): 2017

Weitere Informationen

• Handle: http://hdl.handle.net/10419/202857
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ