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SUMMARY:Networks\, subnetworks and macroprudential capital requirements - 
 Milne\, A (Loughborough University)
DTSTART:20141219T090000Z
DTEND:20141219T094500Z
UID:TALK56711@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:Co-author: Jukka Isohtl (Loughborouh University and University
  of Oulu) \n\nThis paper explores some of the consequences of network asym
 metry for the transmission and containment of systemic financial risk. Bef
 ore the global financial crisis network linkage was regarded as a source o
 f stability\, providing valuable diversification benefits to the most wide
 ly connected firms\; since the crisis network linkages this view is widely
  questioned\, is connectivity not a source of vulnerability and of potenti
 al transmission of systemic events? A related question is whether macropru
 dential capital requirements\, set to protect the financial system against
  such systemic events\, are better framed (for any given level of aggregat
 e required capital) so as EITHER minimize the degree of transmission of sh
 ocks across the system i.e. focussed on the most connected firms\; OR to m
 aximize the ability of individual firms to withstand systemic disturbances
  i.e. focussed on the most specialized firms. These questions (connectivit
 y as a source of protection or source of risk? f ocussing capital on conne
 cted or exposed firms) are only meaningful once allowance is made for netw
 ork asymmetry and the presence of sub-networks (local connections and expo
 sures within the financial system). We seek answers to these questions thr
 ough simulation of a simple model of systemic financial risk\, with a netw
 ork and subnetworks loosely calibrated to UK experience during the financi
 al crisis\, with a focus on both exposure to property markets and extent o
 f maturity mismatch.\n
LOCATION:Seminar Room 1\, Newton Institute
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