Systemic risk and heterogeneous leverage in banking networks
Physica A: Statistical Mechanics and its Applications, cilt.462, ss.358-375, 2016 (SCI-Expanded, Scopus)
- Yayın Türü: Makale / Tam Makale
- Cilt numarası: 462
- Basım Tarihi: 2016
- Doi Numarası: 10.1016/j.physa.2016.06.085
- Dergi Adı: Physica A: Statistical Mechanics and its Applications
- Derginin Tarandığı İndeksler: Science Citation Index Expanded (SCI-EXPANDED), Scopus
- Sayfa Sayıları: ss.358-375
- Anahtar Kelimeler: Systemic risk, Leverage, Surcharge, Interbank network, GSIB, Basel III
- Boğaziçi Üniversitesi Adresli: Evet
Özet
This study probes systemic risk implications of leverage heterogeneity in banking networks. We show that the presence of heterogeneous leverages drastically changes the systemic effects of defaults and the nature of the contagion in interbank markets. Using financial leverage data from the US banking system, through simulations, we analyze the systemic significance of different types of borrowers, the evolution of the network, the consequences of interbank market size and the impact of market segmentation. Our study is related to the recent Basel III regulations on systemic risk and the treatment of the Global Systemically Important Banks (GSIBs). We also assess the extent to which the recent capital surcharges on GSIBs may curb financial fragility. We show the effectiveness of surcharge policy for the most-levered banks vis-a-vis uniform capital injection.