Pub Date : 2025-02-18DOI: 10.1016/j.jfs.2025.101396
Manthos D. Delis , Maria Iosifidi
Using global data on syndicated loans, we show that any negative effect of stronger creditor rights on loan spreads, as identified in the prior literature (Qian and Strahan, 2007; Bae and Goyal, 2009), disappears once we include a single country characteristic: country size. This finding is robust to several identification methods, both global samples and within-country changes in creditor rights, different panel spans, and hundreds of control variables. We identify that key origins of the effect of country size on loan pricing are ethnic fractionalization and within-country heterogeneity in economic preferences, which create country risk.
{"title":"Determinants of global loan pricing: Creditor rights or country size?","authors":"Manthos D. Delis , Maria Iosifidi","doi":"10.1016/j.jfs.2025.101396","DOIUrl":"10.1016/j.jfs.2025.101396","url":null,"abstract":"<div><div>Using global data on syndicated loans, we show that any negative effect of stronger creditor rights on loan spreads, as identified in the prior literature (Qian and Strahan, 2007; Bae and Goyal, 2009), disappears once we include a single country characteristic: country size. This finding is robust to several identification methods, both global samples and within-country changes in creditor rights, different panel spans, and hundreds of control variables. We identify that key origins of the effect of country size on loan pricing are ethnic fractionalization and within-country heterogeneity in economic preferences, which create country risk.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101396"},"PeriodicalIF":6.1,"publicationDate":"2025-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143453952","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-14DOI: 10.1016/j.jfs.2025.101393
Kai Wu, Yufei Lu
This study investigates the association between corporate digital transformation and default risk for a sample of Chinese-listed firms from 2009 to 2022. We find a robust positive association between digital transformation and corporate default risk. Further tests reveal the destabilizing impact of digital adoption strengthens under greater competition, human capital intensity, shareholder expropriation, and weak monitoring. The additional analysis points to resource misallocation and managerial manipulations as two potential channels propagating distress. We show that digital transformation correlates with escalated asset impairments and financial frauds. Our study provides evidence that digital transformation strategies entail underappreciated risks to financial stability.
{"title":"The digital dilemma: Corporate digital transformation and default risk","authors":"Kai Wu, Yufei Lu","doi":"10.1016/j.jfs.2025.101393","DOIUrl":"10.1016/j.jfs.2025.101393","url":null,"abstract":"<div><div>This study investigates the association between corporate digital transformation and default risk for a sample of Chinese-listed firms from 2009 to 2022. We find a robust positive association between digital transformation and corporate default risk. Further tests reveal the destabilizing impact of digital adoption strengthens under greater competition, human capital intensity, shareholder expropriation, and weak monitoring. The additional analysis points to resource misallocation and managerial manipulations as two potential channels propagating distress. We show that digital transformation correlates with escalated asset impairments and financial frauds. Our study provides evidence that digital transformation strategies entail underappreciated risks to financial stability.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"77 ","pages":"Article 101393"},"PeriodicalIF":6.1,"publicationDate":"2025-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143420374","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-14DOI: 10.1016/j.jfs.2025.101392
Emmanuel Caiazzo , Alberto Zazzaro
This paper analyzes financial contagion in a banking system where banks are linked to each other by interbank claims and common assets. We find that asset commonality makes banking systems more vulnerable to idiosyncratic liquidity shocks and helps to determine which interbank network structures are resistant to contagion. When the degree of commonality is homogeneous across banks, the complete interbank network, in which each bank borrows evenly from all the others, displays the usual robust-yet-fragile property. However, in the more general case of heterogeneous common asset holdings the complete interbank network is less resilient than other incomplete networks but not necessarily the most fragile. We also show that the degree and variability of asset commonality between banks and the way this intertwines with the cross-holdings of interbank deposits have important implications for macroprudential regulation.
{"title":"Bank diversity and financial contagion","authors":"Emmanuel Caiazzo , Alberto Zazzaro","doi":"10.1016/j.jfs.2025.101392","DOIUrl":"10.1016/j.jfs.2025.101392","url":null,"abstract":"<div><div>This paper analyzes financial contagion in a banking system where banks are linked to each other by interbank claims and common assets. We find that asset commonality makes banking systems more vulnerable to idiosyncratic liquidity shocks and helps to determine which interbank network structures are resistant to contagion. When the degree of commonality is homogeneous across banks, the complete interbank network, in which each bank borrows evenly from all the others, displays the usual robust-yet-fragile property. However, in the more general case of heterogeneous common asset holdings the complete interbank network is less resilient than other incomplete networks but not necessarily the most fragile. We also show that the degree and variability of asset commonality between banks and the way this intertwines with the cross-holdings of interbank deposits have important implications for macroprudential regulation.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"77 ","pages":"Article 101392"},"PeriodicalIF":6.1,"publicationDate":"2025-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143420373","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ongoing financial innovation raises the specter of banking and payment crises. Little aggregate evidence exists on the repercussions of substantial suspensions of payments. State-level experiments fill this gap. Four times in the last forty years, U.S. governors suspended payments from state-insured depositories. Rhode Island’s deposits crisis (1991), which was large, prolonged, and occurred during a recession, substantially lengthened and deepened the downturn. Deposits freezes in Nebraska (1983), Ohio (1985), and Maryland (1985), which were short and occurred during expansions, had little macroeconomic impact. Data sparsity inhibits analysis of these events with standard methods. To perform inference, we develop a novel Bayesian method for synthetic control, which generates output useful for policymakers and theorists. Our findings suggest policies that ensure institutions continue to process payments on a business-as-usual basis at all times have substantial value.
{"title":"Suspensions of payments and their consequences","authors":"Qian Chen , Christoffer Koch , Gary Richardson , Padma Sharma","doi":"10.1016/j.jfs.2025.101391","DOIUrl":"10.1016/j.jfs.2025.101391","url":null,"abstract":"<div><div>Ongoing financial innovation raises the specter of banking and payment crises. Little aggregate evidence exists on the repercussions of substantial suspensions of payments. State-level experiments fill this gap. Four times in the last forty years, U.S. governors suspended payments from state-insured depositories. Rhode Island’s deposits crisis (1991), which was large, prolonged, and occurred during a recession, substantially lengthened and deepened the downturn. Deposits freezes in Nebraska (1983), Ohio (1985), and Maryland (1985), which were short and occurred during expansions, had little macroeconomic impact. Data sparsity inhibits analysis of these events with standard methods. To perform inference, we develop a novel Bayesian method for synthetic control, which generates output useful for policymakers and theorists. Our findings suggest policies that ensure institutions continue to process payments on a business-as-usual basis at all times have substantial value.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101391"},"PeriodicalIF":6.1,"publicationDate":"2025-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143453953","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-12DOI: 10.1016/j.jfs.2025.101394
Athina Petropoulou , Vasileios Pappas , Steven Ongena , Dimitrios Gounopoulos , Richard Fairchild
In recognizing the uniqueness of their business model, the FDIC launched a new community bank definition in 2012 (reaffirmed in 2020) that changed its approach to identifying this bank group. This paper examines the impact of this re-defined community bank status on bank performance. Using a quasi-difference-in-differences approach, the study finds that banks that obtain the community bank status exhibit greater financial stability and lower risk, with lending and deposit structures mediating these effects. These findings offer new insights into a "warm glow" effect brought by the re-classification, affecting the performance of these institutions. By assigning the community bank status, the FDIC may have tapped into the social and emotional significance tied to the word "community" for various stakeholders.
{"title":"The performance of FDIC-identified community banks","authors":"Athina Petropoulou , Vasileios Pappas , Steven Ongena , Dimitrios Gounopoulos , Richard Fairchild","doi":"10.1016/j.jfs.2025.101394","DOIUrl":"10.1016/j.jfs.2025.101394","url":null,"abstract":"<div><div>In recognizing the uniqueness of their business model, the FDIC launched a new community bank definition in 2012 (reaffirmed in 2020) that changed its approach to identifying this bank group. This paper examines the impact of this re-defined community bank status on bank performance. Using a quasi-difference-in-differences approach, the study finds that banks that obtain the community bank status exhibit greater financial stability and lower risk, with lending and deposit structures mediating these effects. These findings offer new insights into a \"warm glow\" effect brought by the re-classification, affecting the performance of these institutions. By assigning the community bank status, the FDIC may have tapped into the social and emotional significance tied to the word \"community\" for various stakeholders.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"77 ","pages":"Article 101394"},"PeriodicalIF":6.1,"publicationDate":"2025-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143420072","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-06DOI: 10.1016/j.jfs.2025.101389
Linda Tinofirei Muchenje
In this study, we consider for the first time whether and how stock liquidity impacts corporate climate performance in China. We find that an increase in stock liquidity is highly associated with lower carbon emissions. To address endogeneity concerns, we exploit a unique quasi-natural experiment in China— the stock market liberalization (Shanghai-Shenzhen Hong Kong Stock Connect). Using difference-in-differences (DID) estimations, we find that carbon emissions for treatment firms substantially decrease after the stock market liberalization. The impact of stock liquidity is more pronounced for enterprises facing severe financial constraints, greater equity dependence, and operating in pollution-intensive sectors. Similarly, we find that external monitoring, carbon abatement investment, and green innovation are plausible channels through which stock liquidity drives carbon emissions reduction. We further find that the sensitivity of corporate climate performance to improved stock liquidity becomes stronger following the Paris Agreement. Overall, we uncover new evidence on the impact of stock liquidity on corporate climate performance, expanding our understanding of the role of financial markets towards a greener economy.
{"title":"Stock liquidity and corporate climate performance: evidence from China","authors":"Linda Tinofirei Muchenje","doi":"10.1016/j.jfs.2025.101389","DOIUrl":"10.1016/j.jfs.2025.101389","url":null,"abstract":"<div><div>In this study, we consider for the first time whether and how stock liquidity impacts corporate climate performance in China. We find that an increase in stock liquidity is highly associated with lower carbon emissions. To address endogeneity concerns, we exploit a unique quasi-natural experiment in China— the stock market liberalization (Shanghai-Shenzhen Hong Kong Stock Connect). Using difference-in-differences (DID) estimations, we find that carbon emissions for treatment firms substantially decrease after the stock market liberalization. The impact of stock liquidity is more pronounced for enterprises facing severe financial constraints, greater equity dependence, and operating in pollution-intensive sectors. Similarly, we find that external monitoring, carbon abatement investment, and green innovation are plausible channels through which stock liquidity drives carbon emissions reduction. We further find that the sensitivity of corporate climate performance to improved stock liquidity becomes stronger following the Paris Agreement. Overall, we uncover new evidence on the impact of stock liquidity on corporate climate performance, expanding our understanding of the role of financial markets towards a greener economy.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"77 ","pages":"Article 101389"},"PeriodicalIF":6.1,"publicationDate":"2025-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143378699","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-03DOI: 10.1016/j.jfs.2025.101388
Barbara Casu , Elena Kalotychou , Petros Katsoulis
We develop a stress-testing network model calibrated to the largest banks and investment funds in over-the-counter (OTC) derivatives markets. We examine the impact of the mandatory collateralisation of bilateral OTC derivatives on liquidity, counterparty, and systemic risks, as well as the impact of market frictions on participants’ ability to withstand liquidity shocks. The collateralisation of bilateral trades reduces counterparty and systemic risks but increases the prominence of liquidity-driven defaults and the potential for the central counterparty to transmit losses. Frictions such as fire sales, delayed payments, and no partial payments by defaulted counterparties greatly increase liquidity risk and systemic losses.
{"title":"Stress testing OTC derivatives: Clearing reforms and market frictions","authors":"Barbara Casu , Elena Kalotychou , Petros Katsoulis","doi":"10.1016/j.jfs.2025.101388","DOIUrl":"10.1016/j.jfs.2025.101388","url":null,"abstract":"<div><div>We develop a stress-testing network model calibrated to the largest banks and investment funds in over-the-counter (OTC) derivatives markets. We examine the impact of the mandatory collateralisation of bilateral OTC derivatives on liquidity, counterparty, and systemic risks, as well as the impact of market frictions on participants’ ability to withstand liquidity shocks. The collateralisation of bilateral trades reduces counterparty and systemic risks but increases the prominence of liquidity-driven defaults and the potential for the central counterparty to transmit losses. Frictions such as fire sales, delayed payments, and no partial payments by defaulted counterparties greatly increase liquidity risk and systemic losses.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"77 ","pages":"Article 101388"},"PeriodicalIF":6.1,"publicationDate":"2025-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143201030","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.jfs.2025.101374
Haifeng Hu , Tao Wei , Aiping Wang
Compared with the previous literature on external FinTech, this paper is more interested in the role played by bank FinTech. On the basis of panel data from Chinese commercial banks spanning 2010–2021, this paper investigates the impact of digital transformation on bank soundness and its potential mechanisms. The empirical findings demonstrate a positive association between digital transformation and bank soundness, driven primarily by strategic and management digitization. Mechanistic analysis indicates that digital transformation improves bank soundness by mitigating risk-taking behavior and promoting diversification. The positive effect of digital transformation is more pronounced in state-owned and joint-stock banks, banks with higher liquidity mismatch and in the subsamples with greater levels of external FinTech development and economic policy uncertainty. Additional analysis suggests that digital transformation can still enhance bank soundness even in the presence of relatively lenient monetary and macroprudential policies, highlighting the harmonization and complementarity between internal innovation from digital transformation and external regulatory policies in maintaining banking stability. Overall, this paper contributes to the literature on bank FinTech, which focuses on the factors influencing bank stability. This study also provides a novel explanation for the relationship between financial innovation and financial stability.
{"title":"Does digital transformation enhance bank soundness? Evidence from Chinese commercial banks","authors":"Haifeng Hu , Tao Wei , Aiping Wang","doi":"10.1016/j.jfs.2025.101374","DOIUrl":"10.1016/j.jfs.2025.101374","url":null,"abstract":"<div><div>Compared with the previous literature on external FinTech, this paper is more interested in the role played by bank FinTech. On the basis of panel data from Chinese commercial banks spanning 2010–2021, this paper investigates the impact of digital transformation on bank soundness and its potential mechanisms. The empirical findings demonstrate a positive association between digital transformation and bank soundness, driven primarily by strategic and management digitization. Mechanistic analysis indicates that digital transformation improves bank soundness by mitigating risk-taking behavior and promoting diversification. The positive effect of digital transformation is more pronounced in state-owned and joint-stock banks, banks with higher liquidity mismatch and in the subsamples with greater levels of external FinTech development and economic policy uncertainty. Additional analysis suggests that digital transformation can still enhance bank soundness even in the presence of relatively lenient monetary and macroprudential policies, highlighting the harmonization and complementarity between internal innovation from digital transformation and external regulatory policies in maintaining banking stability. Overall, this paper contributes to the literature on bank FinTech, which focuses on the factors influencing bank stability. This study also provides a novel explanation for the relationship between financial innovation and financial stability.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"76 ","pages":"Article 101374"},"PeriodicalIF":6.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143143410","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.jfs.2024.101363
Alin Marius Andrieş , Steven Ongena , Nicu Sprincean
We examine the association between country-level sectoral credit dynamics and bank-level systemic risk. Contrary to most studies that only delve into broad-based credit development, we focus on sectoral credit allocation, specifically to households versus firms, and to the tradable versus non-tradable sector. Based on a global sample of 417 banks across 46 countries over the period 2000–2014, we find that lending to households and corporates in the non-tradable sector is positively associated with system-wide distress. Conversely, credit granted to corporations and to the tradable sector negatively correlates with banks’ systemic behavior. Sub-sample analysis shows that risks from household lending are transmitted through small banks, whereas non-tradable lending is transmitted through large banks. Moreover, banks located in emerging market and developing economies exhibit enhanced systemic behavior against the backdrop of higher household and tradable credit growth, whereas credit to non-tradable sector firms tends to increase systemic fragility of banks in advanced economies. By the same token, the results differ for the pre-crisis and crisis/post-crisis periods, with the full sample findings driven by the crisis/post-crisis timespan. The findings emphasize critical policy implications considering sectoral heterogeneity, bank size, country of incorporation of banks, and periods of financial tranquillity/instability. Authorities can intervene in the most systemic economic sectors and limit the accumulation of “bad credit” and preserve systemic resilience, while still benefiting from the positive impact of “good credit” on growth and financial stability.
{"title":"Sectoral credit allocation and systemic risk","authors":"Alin Marius Andrieş , Steven Ongena , Nicu Sprincean","doi":"10.1016/j.jfs.2024.101363","DOIUrl":"10.1016/j.jfs.2024.101363","url":null,"abstract":"<div><div>We examine the association between country-level sectoral credit dynamics and bank-level systemic risk. Contrary to most studies that only delve into broad-based credit development, we focus on sectoral credit allocation, specifically to households versus firms, and to the tradable versus non-tradable sector. Based on a global sample of 417 banks across 46 countries over the period 2000–2014, we find that lending to households and corporates in the non-tradable sector is positively associated with system-wide distress. Conversely, credit granted to corporations and to the tradable sector negatively correlates with banks’ systemic behavior. Sub-sample analysis shows that risks from household lending are transmitted through small banks, whereas non-tradable lending is transmitted through large banks. Moreover, banks located in emerging market and developing economies exhibit enhanced systemic behavior against the backdrop of higher household and tradable credit growth, whereas credit to non-tradable sector firms tends to increase systemic fragility of banks in advanced economies. By the same token, the results differ for the pre-crisis and crisis/post-crisis periods, with the full sample findings driven by the crisis/post-crisis timespan. The findings emphasize critical policy implications considering sectoral heterogeneity, bank size, country of incorporation of banks, and periods of financial tranquillity/instability. Authorities can intervene in the most systemic economic sectors and limit the accumulation of “bad credit” and preserve systemic resilience, while still benefiting from the positive impact of “good credit” on growth and financial stability.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"76 ","pages":"Article 101363"},"PeriodicalIF":6.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143143406","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We extend the Schumpeter meeting Keynes (K+S) agent-based model by introducing an evolving interbank network in the money market. Banks are exposed to counterparty risk and evaluate interbank positions using a network valuation (NEVA) clearing mechanism, which ensures systemic risk minimization with minimal assumptions on banks’ behavior. The model can replicate several stylized facts about the topology of the interbank network and the dynamics of banks’ balance sheets. The model encompasses financial contagion and systemic risk, allowing us to study the interactions between micro- and macro-prudential policies. Our results suggest that the introduction of a micro-prudential regulation also accounting for the network structure can reduce the incidence of systemic risk events. We also find that, in presence of a two-pillar regulatory framework – grounded on a Basel III macro-prudential regulation and a NEVA-based micro-prudential one –, there is no trade-off between financial stability and macroeconomic performance. This points towards the possibility of designing a regulatory framework able to achieve financial stability without overly stringent capital requirements.
{"title":"Robust-less-fragile: Tackling systemic risk and financial contagion in a macro agent-based model","authors":"Gianluca Pallante , Mattia Guerini , Mauro Napoletano , Andrea Roventini","doi":"10.1016/j.jfs.2024.101352","DOIUrl":"10.1016/j.jfs.2024.101352","url":null,"abstract":"<div><div>We extend the <em>Schumpeter meeting Keynes</em> (K+S) agent-based model by introducing an evolving interbank network in the money market. Banks are exposed to counterparty risk and evaluate interbank positions using a network valuation (NEVA) clearing mechanism, which ensures systemic risk minimization with minimal assumptions on banks’ behavior. The model can replicate several stylized facts about the topology of the interbank network and the dynamics of banks’ balance sheets. The model encompasses financial contagion and systemic risk, allowing us to study the interactions between micro- and macro-prudential policies. Our results suggest that the introduction of a micro-prudential regulation also accounting for the network structure can reduce the incidence of systemic risk events. We also find that, in presence of a two-pillar regulatory framework – grounded on a <em>Basel III macro-prudential</em> regulation and a <em>NEVA-based micro-prudential</em> one –, there is no trade-off between financial stability and macroeconomic performance. This points towards the possibility of designing a regulatory framework able to achieve financial stability without overly stringent capital requirements.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"76 ","pages":"Article 101352"},"PeriodicalIF":6.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143143412","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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