Cascades in real interbank markets

Arbeitspapier

We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted institution to start a cascade depends on an interplay of shock size and connectivity. Further results indicate that the ability to limit default risk by spreading the lending to many counterparts decreased with the financial crisis. To evaluate the influence of the network structure on market stability, we compare the simulated cascades from the empirical network with results from different randomized network models. The results show that the empirical network has non-random features, which cannot be captured by rewired networks. The analysis also reveals that simulations assuming homogeneity for the size of banks and loan contracts dramatically overestimates the fragility of the interbank market.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1872

Classification and Topics

• Classification: Wirtschaft ; Financial Forecasting and Simulation ; Financial Crises ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Statistical Simulation Methods: General
• Subject: interbank loan networks ; systemic risk ; cascades ; null models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Karimi, Fariba ; Raddant, Matthias
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/83494
• Last update: 10.03.2025, 11:45 AM CET