eprintid: 3755
rev_number: 10
eprint_status: archive
userid: 69
dir: disk0/00/00/37/55
datestamp: 2017-08-04 11:22:51
lastmod: 2017-08-04 11:22:51
status_changed: 2017-08-04 11:22:51
type: article
metadata_visibility: show
creators_name: Cimini, Giulio
creators_name: Serri, Matteo
creators_id: giulio.cimini@imtlucca.it
creators_id: 
title: Entangling Credit and Funding Shocks in Interbank Markets
ispublished: pub
subjects: HA
subjects: HB
subjects: HG
divisions: EIC
full_text_status: public
abstract: Credit and liquidity shocks represent main channels of financial contagion for interbank lending markets. On one hand, banks face potential losses whenever their counterparties are under distress and thus unable to fulfill their obligations. On the other hand, solvency constraints may force banks to recover lost fundings by selling their illiquid assets, resulting in effective losses in the presence of fire sales—that is, when funding shortcomings are widespread over the market. Because of the complex structure of the network of interbank exposures, these losses reverberate among banks and eventually get amplified, with potentially catastrophic consequences for the whole financial system. Inspired by the recently proposed Debt Rank, in this work we define a systemic risk metric that estimates the potential amplification of losses in interbank markets accounting for both credit and liquidity contagion channels: the Debt-Solvency Rank. We implement this framework on a dataset of 183 European banks that were publicly traded between 2004 and 2013, showing indeed that liquidity spillovers substantially increase systemic risk, and thus cannot be neglected in stress-test scenarios. We also provide additional evidence that the interbank market was extremely fragile up to the global financial crisis, becoming slightly more robust only afterwards.
date: 2016
date_type: published
publication: PloS One
volume: 11
number: 8
publisher: Public Library of Science
pagerange: 1-15
id_number: 10.1371/journal.pone.0161642
refereed: TRUE
issn: 1932-6203
official_url: https://doi.org/10.1371/journal.pone.0161642
projects: EU project GROWTHCOM (FP7-ICT, n. 611272)
projects: EU FET project SIMPOL (nr. 610704)
projects: EU project DOLFINS (H2020-EU.1.2.2., grant n. 640772)
projects: EU project MULTIPLEX (FP7-ICT, n. 317532)
citation:   Cimini, Giulio and Serri, Matteo  Entangling Credit and Funding Shocks in Interbank Markets.  PloS One, 11 (8).  pp. 1-15.  ISSN 1932-6203      (2016)  
document_url: http://eprints.imtlucca.it/3755/1/journal.pone.0161642.PDF