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Risk Assessment for Banking Systems
Year Of Publication: 2002
Month Of Publication: October
Pages: 53
Download Count: 794
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Comment Num: 0
Language: EN
Who Can Read: Free
Date: 1-26-2006
Publisher: Administrator
In this paper we suggest a new approach to risk assessment for banks. Ratherthan looking at them individually we try to undertake an analysis at the levelof the banking system. Such a perspective is necessary because the complicatednetwork of mutual credit obligations can make the actual risk exposure of banksinvisible at the level of individual institutions. We apply our framework to a crosssection of individual bank data as they are usually collected at the central bank.Using standard risk management techniques in combination with a network modelof interbank exposures we analyze the consequences of macroeconomic shocks forbank insolvency risk. In particular we consider interest rate shocks, exchange rateand stock market movements as well as shocks related to the business cycle. Thefeedback between individual banks and potential domino effects from bank defaultsare taken explicitly into account. The model determines endogenously probabilitiesof bank insolvencies, recovery rates and a decomposition of insolvency cases intodefaults that directly result from movements in risk factors and defaults that ariseindirectly as a consequence of contagion.
Elsinger, Helmut Sign in to follow this author
Lehar, Alfred Sign in to follow this author
Summer, Martin Sign in to follow this author
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