The systemic implications of bail-in: a multi-layered network approach

Arbeitspapier

We present a tractable framework to assess the systemic implications of bail-in. To this end, we construct a multi-layered network model where each layer represents the securities cross holdings of a specific seniority among the largest euro area banking groups. On this basis, the bail-in of a bank can be simulated to identify the direct contagion risk to the other banks in the network. We find that there is no direct contagion to creditor banks. Spill-overs also tend to be small due to low levels of securities cross-holdings in the interbank network. We also quantify the impact of a bail-in on the different liability holders. In the baseline scenario, shareholders and subordinated creditors are always affected by the bail-in, senior unsecured creditors in 75% of the cases. Finally, we compute the effect of the bail-in on the network topology in each layer. We find that a bail-in significantly reshapes interbank linkages within specific seniority layers.

Object Details

• ISBN: 978-92-899-2732-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2010

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; General Financial Markets: Government Policy and Regulation ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Computational Techniques; Simulation Modeling
• Subject: bail-in ; financial networks ; policy simulation ; resolution regimes ; systemic risk

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hüser, Anne-Caroline ; Hałaj, Grzegorz ; Kok, Christoffer ; Perales, Cristian ; van der Kraaij, Anton
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2017

Further information

• DOI: doi:10.2866/965941
• Handle: http://hdl.handle.net/10419/154443
• Last update: 10.03.2025, 11:43 AM CET