Related papers: Hedging Deposit Run Risk Prior to the 2023 Regiona…
The 2023 U.S. banking crisis propagated not through direct financial linkages but through a high-frequency, information-based contagion channel. This paper moves beyond exploration analysis to test the "too-similar-to-fail" hypothesis,…
Digital banking and online communication have made modern bank runs faster and more networked than the canonical queue-at-the-branch setting. While equilibrium models explain why strategic complementarities generate run risk, they offer…
We present a limits-to-arbitrage model to study the impact of securitization, leverage and credit risk protection on the cyclicity of bank credit. In a stable bank credit situation, no cycles of credit expansion or contraction appear.…
This paper studies an optimal investment and risk control problem for an insurer with default contagion and regime-switching. The insurer in our model allocates his/her wealth across multi-name defaultable stocks and a riskless bond under…
We build a balance sheet-based model to capture run risk, i.e., a reduced potential to raise capital from liquidity buffers under stress, driven by depositor scrutiny and further fueled by fire sales in response to withdrawals. The setup is…
Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure, and it receives particular attention because of the magnitude of the underlying market. The embedded prepayment option…
Macroeconomic factors have a critical impact on banking credit risk, which cannot be directly controlled by banks, and therefore, there is a need for an early credit risk warning system based on the macroeconomy. By comparing different…
A scenario in which regulators take the drastic step of requiring coverage of all venture bank investment loans using interbank borrowed funds is considered. In this scenario, a minimal amount of default insurance is used, such that Tier 1…
Assessing the contribution of various risk factors to future inflation risks was crucial for guiding monetary policy during the recent high inflation period. However, existing methodologies often provide limited insights by focusing solely…
Research has shown banks match interest income and expense betas, and thereby obtain net interest income margins which are insensitive to changes in short-term interest rates. The present analysis extends this research in a number of ways.…
Loan seasoning and inefficient consumer interest rate refinance behavior are well-known for mortgages. Consumer automobile loans, which are collateralized loans on a rapidly depreciating asset, have attracted less attention, however. We…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
This work proposes an augmented variant of DebtRank with uncertainty intervals as a method to investigate and assess systemic risk in financial networks, in a context of incomplete data. The algorithm is tested against a default contagion…
Foreign exchange and credit derivatives increase the bank's contributions to systemic risk. Interest rate derivatives decrease it. The proportion of non-performing loans over total loans and the leverage ratio have stronger impact on…
In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…
This study investigates the functioning of modern payment systems through the lens of banks' maturity mismatch practices, and it examines the effects of banks' refusal to roll over short-term interbank liabilities on financial stability.…
We study the difference between the level of systemic risk that is empirically measured on an interbank network and the risk that can be deduced from the balance sheets composition of the participating banks. Using generalised DebtRank…
The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
We report a study of a stylized banking cascade model investigating systemic risk caused by counter party failure using liabilities and assets to define banks' balance sheet. In our stylized system, banks can be in two states: normally…