Financial contagion from liquidity shocks has being recently ascribed as a prominent driver of systemic risk in interbank lending markets. Building on standard compartment models used in epidemics, in this work we develop an EDB (Exposed–Distressed–Bankrupted) model for the dynamics of liquidity shocks reverberation between banks, and validate it on electronic market for interbank deposits data. We show that the interbank network was highly susceptible to liquidity contagion at the beginning of the 2007/2008 global financial crisis, and that the subsequent micro-prudential and liquidity hoarding policies adopted by banks increased the network resilience to systemic risk—yet with the undesired side effect of drying out liquidity from the market. We finally show that the individual riskiness of a bank is better captured by its network centrality than by its participation to the market, along with the currently debated concept of “too interconnected to fail”.

Brandi, G., Di Clemente, R., Cimini, G. (2018). Epidemics of liquidity shortages in interbank markets. PHYSICA. A, 507, 255-267 [10.1016/j.physa.2018.05.104].

Epidemics of liquidity shortages in interbank markets

Cimini, Giulio
2018-01-01

Abstract

Financial contagion from liquidity shocks has being recently ascribed as a prominent driver of systemic risk in interbank lending markets. Building on standard compartment models used in epidemics, in this work we develop an EDB (Exposed–Distressed–Bankrupted) model for the dynamics of liquidity shocks reverberation between banks, and validate it on electronic market for interbank deposits data. We show that the interbank network was highly susceptible to liquidity contagion at the beginning of the 2007/2008 global financial crisis, and that the subsequent micro-prudential and liquidity hoarding policies adopted by banks increased the network resilience to systemic risk—yet with the undesired side effect of drying out liquidity from the market. We finally show that the individual riskiness of a bank is better captured by its network centrality than by its participation to the market, along with the currently debated concept of “too interconnected to fail”.
2018
Pubblicato
Rilevanza internazionale
Articolo
Esperti anonimi
Settore FIS/02 - FISICA TEORICA, MODELLI E METODI MATEMATICI
Settore FIS/03 - FISICA DELLA MATERIA
English
Epidemic models; Financial contagion; Interbank lending market; Liquidity shocks; Statistics and Probability; Condensed Matter Physics
https://www.sciencedirect.com/science/article/pii/S0378437118306265?via=ihub
Brandi, G., Di Clemente, R., Cimini, G. (2018). Epidemics of liquidity shortages in interbank markets. PHYSICA. A, 507, 255-267 [10.1016/j.physa.2018.05.104].
Brandi, G; Di Clemente, R; Cimini, G
Articolo su rivista
File in questo prodotto:
File Dimensione Formato  
1-s2.0-S0378437118306265-main.pdf

solo utenti autorizzati

Licenza: Copyright dell'editore
Dimensione 635.36 kB
Formato Adobe PDF
635.36 kB Adobe PDF   Visualizza/Apri   Richiedi una copia
1610.03259.pdf

accesso aperto

Descrizione: Pre--print
Licenza: Non specificato
Dimensione 509.32 kB
Formato Adobe PDF
509.32 kB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/234037
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 17
  • ???jsp.display-item.citation.isi??? 14
social impact