On the optimal control of interbank contagion in the euro area banking system

IF 6.1 2区 经济学 Q1 BUSINESS, FINANCE Journal of Financial Stability Pub Date : 2024-01-26 DOI:10.1016/j.jfs.2024.101225
Gábor Fukker, Christoffer Kok
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Abstract

In this paper we present a methodology of model-based calibration of additional capital needed in an interconnected financial system to minimize potential contagion losses. Building on ideas from combinatorial optimization tailored to controlling contagion in case of complete information about an interbank network, we augment the model with three plausible types of fire sale mechanisms. We then demonstrate the power of the methodology on the euro area banking system based on a network of 373 banks. On the basis of an exogenous shock leading to defaults of some banks in the network, we find that the contagion losses and the policy authority’s ability to control them depend on the assumed fire sale mechanism and the fiscal budget constraint that may or may not restrain the policy authorities from infusing money to halt the contagion. The modelling framework could be used both as a crisis management tool to help inform decisions on capital/liquidity infusions in the context of resolutions and precautionary recapitalizations or as a crisis prevention tool to help calibrate capital buffer requirements to address systemic risks due to interconnectedness.

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论欧元区银行体系中银行间传染的最优控制
在本文中,我们提出了一种基于模型校准互联金融体系所需额外资本的方法,以尽量减少潜在的传染损失。在银行间网络信息完整的情况下,我们基于组合优化的理念来控制传染,在模型中增加了三种可信的火灾销售机制。然后,我们以 373 家银行组成的网络为基础,在欧元区银行系统中演示了该方法的威力。在外生冲击导致网络中一些银行违约的基础上,我们发现,传染损失和政策当局控制传染损失的能力取决于假定的火灾销售机制和财政预算约束,而财政预算约束可能会也可能不会限制政策当局注入资金以阻止传染。该建模框架既可用作危机管理工具,帮助在决议和预防性资本重组的背景下为资本/流动性注入决策提供信息,也可用作危机预防工具,帮助校准资本缓冲要求,以应对相互关联导致的系统性风险。
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来源期刊
CiteScore
7.70
自引率
9.30%
发文量
78
审稿时长
34 days
期刊介绍: The Journal of Financial Stability provides an international forum for rigorous theoretical and empirical macro and micro economic and financial analysis of the causes, management, resolution and preventions of financial crises, including banking, securities market, payments and currency crises. The primary focus is on applied research that would be useful in affecting public policy with respect to financial stability. Thus, the Journal seeks to promote interaction among researchers, policy-makers and practitioners to identify potential risks to financial stability and develop means for preventing, mitigating or managing these risks both within and across countries.
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