Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208258
Authors: 
Covi, Giovanni
Gorpe, Mehmet Ziya
Kok Sørensen, Christoffer
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper 2224
Abstract: 
This paper presents a novel approach to investigate and model the network of euro area banks' large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We then develop a Contagion Mapping (CoMap) methodology to study contagion potential of an exogenous default shock via counterparty credit and funding risks. We construct contagion and vulnerability indices measuring respectively the systemic importance of banks and their degree of fragility. Decomposing the results into the respective contributions of credit and funding shocks provides insights to the nature of contagion which can be used to calibrate bank-specific capital and liquidity requirements and large exposures limits. We find that tipping points shifting the euro area banking system from a less vulnerable state to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics.
Subjects: 
Systemic Risk
Network Analysis
Interconnectedness
Large Exposures
Stress Test
Macroprudential Policy
JEL: 
D85
G17
G33
L14
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3486-2
Document Type: 
Working Paper

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