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Interbank exposures : an empirical examination of systemic risk in the Belgian banking system

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Author Info
Degryse, H.A.
Nguyen, G. (Tilburg University, Center for Economic Research)

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Abstract

Robust (cross-border) interbank markets are important for the well functioning of modern financial systems. Yet, a network of interbank exposures may lead to domino effects following the event of an initial bank failure. The structure of the interbank market is a potential important driving factor in the risk and impact of interbank contagion. We investigate the evolution of contagion risk for the Belgian banking system over the period 1993-2002 using detailed information on aggregate interbank exposures of individual banks and on large bilateral interbank exposures. We find that a change from a complete structure (where all banks have symmetric links) towards a multiple money centre structure (where the money centres are symmetrically linked to some banks, which are themselves not linked together) as well as a more concentrated banking market have decreased the risk and impact of contagion. Moreover, an increase in the proportion of cross-border interbank assets has lowered the risk and impact of local contagion. Yet, this reduction was probably accompanied by an increase in contagion risk generated by foreign banks, although even here the contagion risk appears fairly limited.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 4.

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Date of creation: 2004
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Handle: RePEc:dgr:kubcen:20044

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G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G20 - Financial Economics - - Financial Institutions and Services - - - General

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Philipp Hartmann & Stefan Straetmans & Casper de Vries, 2005. "Banking system stability - a cross-Atlantic perspective," Working Paper Series 527, European Central Bank. [Downloadable!]
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  2. Martin ČIHÁK & Jaroslav HEŘMÁNEK & Michal HLAVÁČEK, 2007. "New Approaches to Stress Testing the Czech Banking Sector (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(1-2), pages 41-59, March. [Downloadable!]
  3. Patrick Van Roy, 2005. "Credit ratings and the standardised approach to credit risk in Basel II," Finance 0509014, EconWPA. [Downloadable!]
    Other versions:
  4. Lelyveld, Iman van & Liedorp, Franka, 2004. "Interbank Contagion in the Dutch Banking Sector," MPRA Paper 651, University Library of Munich, Germany, revised 11 Jul 2005. [Downloadable!]
    Other versions:
  5. Dairo Estrada & Paola Morales Acevedo, . "La estructura del mercado interbancario y del riesgo de contagio en Colombia," Temas de Estabilidad Financiera 030, Banco de la Republica de Colombia. [Downloadable!]
  6. Reint Gropp & Marco Lo Duca & Jukka Vesala, 2006. "Cross-border bank contagion in Europe," Working Paper Series 662, European Central Bank. [Downloadable!]
    Other versions:
  7. Iman van Lelyveld & Franka Liedorp, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May. [Downloadable!]
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  8. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Using Market Information for Banking System Risk Assessment," International Journal of Central Banking, International Journal of Central Banking, vol. 2(1), March. [Downloadable!]
    Other versions:
  9. Hałaj, Grzegorz, 2006. "Contagion effect in banking system - measures based on randomised loss scenarios," MPRA Paper 525, University Library of Munich, Germany. [Downloadable!]
  10. Ana Babus, 2007. "The Formation of Financial Networks," Working Papers 2007.69, Fondazione Eni Enrico Mattei. [Downloadable!]
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