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SUMMARY:Bank Networks: Contagion\, Systemic Risk and Prudential Policy - F
 aia\, E (Goethe-Universitt Frankfurt)
DTSTART:20141215T160000Z
DTEND:20141215T164500Z
UID:TALK56630@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:Co-authors: Inaki Aldasoro (Goethe University Frankfurt)\, Dom
 enico Delli Gatti (Catholic University Milan) \n\nWe present a network mod
 el of the interbank market in which optimizing risk averse banks lend to e
 ach other and invest in non-liquid assets. Clearing takes place through a 
 price ttonnement mechanism\, while traded quantities ate obtained through 
 three alternative matching algorithms: Maximum Entropy\, Closest matching 
 and Random matching. Contagion occurs through liquidity hoarding\, interba
 nk interconnections and fire sale externalities. The resulting network con
 figurations exhibits core-periphery structure\, dis-assortative behavior a
 nd low clustering coefficient. We measure systemic importance with network
  centrality and input-output metrics and systemic risk with Shapley values
 . Given the realm of our network we analyze the effects of prudential poli
 cies on the stability/efficiency trade-off. Liquidity requirements unequiv
 ocally decrease systemic risk but at the cost of lower efficiency (measure
 d by aggregate investment in non-liquid assets)\; equity requirements tend
  to reduce risk (hence increase stability) without reducing significantly 
 overall investment.\n
LOCATION:Seminar Room 1\, Newton Institute
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