Cross-border interbank contagion in the European Banking Sector

Today we had another exciting presentation by a guest speaker - Dr. Dilyara Salakhova of Banque de France and University Paris West Nanterre. We were quite fortunate to get exposure to other projects featuring networks, share ideas, and, establish collaborations with people outside the lab, substantially enhancing our own research pipeline.

Abstract of the paper is presented below.  

Abstract 

This paper studies the scope for cross-border contagion in the European banking sector using true bilateral exposure data. Using a model of sequential solvency and liquidity cascades in networks, we analyze geographical patterns of loss propagation from 2008 to 2012. We study the distribution of contagion outcomes after a common shock and an exogenous bank default over simulated networks of actual long-and short-term claims. Weexploitanovelanduniquedatasetofmoneymarkettransactions estimated from TARGET2 payments data. Our results show the critical impact of the underlying network structure on the propagation of losses. Aneconometricanalysisofthedeterminantsofcontagion shows that the position of a bank in the network and its exposure to the riskiest counterparties are significantly correlated with default outcomes, behind its own financial ratios.