A network model of financial system resilience

The complex and opaque nature of modern financial systems poses a considerable challenge for the analysis of systemic resilience. In this paper, the authors set out a general framework to gauge systemic risk in circumstances when data about the reach of financial exposures are limited and shocks are...

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Bibliographic Details
Published in:Bank of England quarterly bulletin 2012-07, Vol.52 (3), p.249-249
Main Authors: Anand, Kartik, Gai, Prasanna, Kapadia, Sujit, Brennan, Simon, Willison, Matthew
Format: Article
Language:English
Subjects:
Balance sheets
Banking industry
Banking system
Banks
Financial institutions
Financial services
Financial systems
International finance
Macroeconomics
Risk assessment
Risk management
Statistical models
Studies
Western Europe
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Summary:The complex and opaque nature of modern financial systems poses a considerable challenge for the analysis of systemic resilience. In this paper, the authors set out a general framework to gauge systemic risk in circumstances when data about the reach of financial exposures are limited and shocks are international in nature. They present a statistical model of a financial system involving a diverse set of financial agents, namely domestic banks, overseas banks, and firms, which are linked together by their claims on each other. The model highlights how shocks are propagated through the direct interlinkages of claims and obligations among domestic banks and overseas banks. They also demonstrate how the model can be used to 'stress test' the banking system.
ISSN:0005-5166
2399-4568