Credit Risk in Interbank Networks

ABSTRACT

One of the most striking characteristics of modern financial systems is their complex interdependence, comprising a network of bilateral exposures in the interbank market, in which institutions with surplus liquidity can lend to those with a liquidity shortage. Empirical studies reveal that some interbank networks have features of scale-free networks. We explore the characteristics of financial contagion in networks whose distribution of links approaches a power law, using a model that defines banks’ balance sheets from information on network connectivity. By varying the parameters for the creation of the network, several interbank networks are built, in which the concentration of debt and credit comes from the distribution of links. The results suggest that networks that are more connected and have a high concentration of credit are more resilient to contagion than other types of networks analyzed.     

The credit quality channel: Modeling contagion in the interbank market

We propose an algorithm to model contagion in the interbank market via what we term the “credit quality channel”. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted also via asset devaluations and deteriorations in the credit quality in our algorithm. First, the probability of default (PD) of those banks directly affected by some shock increases. This increases the expected loss of the credit portfolios of the initially affected banks’ counterparties, thereby reducing the counterparties’ regulatory capital ratio. From a logistic regression we estimate the increase in the counterparties’ PD due to a reduced capital ratio. Their increased PDs in turn affect the counterparties’ counterparties, and so on. This coherent and flexible framework is applied to the bilateral interbank credit exposure of the entire German banking system in order to examine policy questions. For that purpose, we propose to measure the potential cost of contagion of a given shock scenario by the aggregated regulatory capital loss computed in our algorithm.     

债券违约对流动性影响的传染效应研究

2014年以来我国信用债市场违约事件频发,信用风险的积聚可能引发债券市场流动性恶化。本文以2014―2019年交易所和银行间市场信用债为研究对象,实证考察违约事件对债券流动性影响的传染效应。研究发现:违约事件在同一发行主体的债券之间具有流动性传染效应,当公司的某期债券出现违约时,公司其他未到期债券的流动性水平显著下降;违约事件对同行业其他公司债券的流动性具有传染效应,当行业中出现债券违约事件时,行业内其他公司的债券流动性显著降低;违约事件爆发越密集或者违约事件越严重,对债券流动性的负面影响越大,而且民营企业债受到的影响要大于国有企业债,低信用等级债受到的影响要大于高信用等级债;在市场密集爆发违约事件或出现较为严重的违约事件时期,宏观流动性增加能够改善债券流动性。     

Modelling Deposit Insurance Scheme Losses in a Basel 2 Framework

This paper extends the existing literature on deposit insurance by proposing a new approach for the estimation of the loss distribution of a Deposit Insurance Scheme (DIS) that is based on the Basel 2 regulatory framework. In particular, we generate the distribution of banks’ losses following the Basel 2 theoretical approach and focus on the part of this distribution that is not covered by capital (tail risk). We also refine our approach by considering two major sources of systemic risks: the correlation between banks’ assets and interbank lending contagion. The application of our model to 2007 data for a sample of Italian banks shows that the target size of the Italian deposit insurance system covers up to 98.96% of its potential losses. Furthermore, it emerges that the introduction of bank contagion via the interbank lending market could lead to the collapse of the entire Italian banking system. Our analysis points out that the existing Italian deposit insurance system can be assessed as adequate only in normal times and not in bad market conditions with substantial contagion between banks. Overall, we argue that policy makers should explicitly consider the following when estimating DIS loss distributions: first, the regulatory framework within which banks operate such as (Basel 2) capital requirements; and, second, potential sources of systemic risk such as the correlation between banks’ assets and the risk of interbank contagion.     

Modelling the emergence of the interbank networks

Interbank contagion has become a buzzword in the aftermath of the financial crisis that led to a series of shocks to the interbank market and to periods of pronounced market disruptions. However, little is known about how interbank networks are formed and about their sensitivity to changes in key bank parameters (for example, induced by common exogenous shocks or by regulatory initiatives). This paper aims to shed light on these issues by modelling endogenously the formation of interbank networks, which in turn allows for checking the sensitivity of interbank network structures and hence, their underlying contagion risk to changes in market-driven parameters as well as to changes in regulatory measures such as large exposures limits. The sequential network formation mechanism presented in the paper is based on a portfolio optimization model, whereby banks allocate their interbank exposures while balancing the return and risk of counterparty default risk and the placements are accepted taking into account funding diversification benefits. The model offers some interesting insights into how key parameters may affect interbank network structures and can be a valuable tool for analysing the impact of various regulatory policy measures relating to banks’ incentives to operate in the interbank market.     

Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns

Interbank markets allow banks to cope with specific liquidity shocks. At the same time, they may represent a channel for contagion as a bank default may spread to other banks through interbank linkages. This paper analyses how contagion propagates within the Italian interbank market using a unique data set including actual bilateral exposures. Based on the availability of information on actual bilateral exposures for all Italian banks, the results obtained by assuming the maximum entropy are compared with those reflecting the observed structure of interbank claims. The comparison indicates that, under certain circumstances, depending on the structure of the interbank linkages, the recovery rates of interbank exposures and banks’ capitalisation, the maximum entropy approach overrates the scope for contagion.     

银行理财产品与金融稳定--基于银行间风险传染的仿真分析

理财产品业绩受市场波动影响加大,有可能与原有银行间风险传染机制共振、放大银行系统风险。基于此视角,本文将银行理财产品嵌入银行间风险传染模型,研究银行理财产品对银行间风险传染的影响。结果发现:(1)在模型假定的条件下,考虑理财产品后,风险传染引发的平均损失增加28.76%。(2)如果考虑破产银行对理财产品的信息传染,平均损失进一步增加17.5%。(3)在投资者敏感性、资产非流动性较高时,银行对理财产品进行救助可以有效抑制风险传染;但冲击较大时,救助则会造成更大范围的风险传染。     

Filling in the blanks: network structure and interbank contagion

The network pattern of financial linkages is important in many areas of banking and finance. Yet, bilateral linkages are often unobserved, and maximum entropy serves as the leading method for estimating counterparty exposures. This paper proposes an efficient alternative that combines information-theoretic arguments with economic incentives to produce more realistic interbank networks that preserve important characteristics of the original interbank market. The method loads the most probable links with the largest exposures consistent with the total lending and borrowing of each bank, yielding networks with minimum density. When used in a stress-testing context, the minimum-density solution overestimates contagion, whereas maximum entropy underestimates it. Using the two benchmarks side-by-side defines a useful range that bounds the cost of contagion in the true interbank network when counterparty exposures are unknown.     

新常态下中国货币政策的宏观经济效应研究 ——基于不同中介目标的实证检验

以中国2003-2020年的季度宏观经济数据为样本,通过构建时变系数向量自回归模型分析银行间同业拆借利率、M2、信贷规模、社会融资规模四项货币政策中介目标对实际产出、通货膨胀、房地产市场以及股票市场的动态影响效应.结果表明:同业拆借利率对产出的影响呈增强趋势,M2、信贷以及社会融资规模等数量型货币政策对产出的影响效应更显著;信贷与社会融资规模对通货膨胀的影响效应较显著;同业拆借利率对房地产市场的短期影响效应较大;M2、信贷与社会融资规模对房地产与股票市场的长期影响效应较大.     

Credit risk transfer and contagion

Some have argued that recent increases in credit risk transfer are desirable because they improve the diversification of risk. Others have suggested that they may be undesirable if they increase the risk of financial crises. Using a model with banking and insurance sectors, we show that credit risk transfer can be beneficial when banks face uniform demand for liquidity. However, when they face idiosyncratic liquidity risk and hedge this risk in an interbank market, credit risk transfer can be detrimental to welfare. It can lead to contagion between the two sectors and increase the risk of crises.     

Market procyclicality and systemic risk

We develop a model that captures, at the same time, the temporal dynamics of single-firm credit risk and the contagion across banks via a network of obligations and common assets. In particular, we enrich the continuous-time modelling approach of default by accounting explicitly for the procyclical loop between asset prices and leverage. Contagion can spread well before any default occurs, through the value of the obligations held by counterparties. Moreover, the extent of procyclicality effects depends explicitly on the structure of both the interbank network and the asset bank network. We analyse the model in a simplified scenario of a densely connected core of banks and we carry out a systematic investigation of how procyclicality emerges from the multiplicative interplay of market illiquidity and tightness of capital requirements.     

Bidding behavior in the SNB’s repo auctions

The Swiss National Bank (SNB) provides reserves to market participants via fixed rate tender auctions. We analyze the banks’ bidding behavior and identify the determinants for the decision to participate as well as on the amount to tender. We find that a bank’s bids from the previous day, the amount of maturing repo operations with the SNB as well as the maturing volume on the interbank repo market have for most banks a significant effect. The autonomous factors (government balances at the SNB and currency in circulation) are of only minor importance. A further determinant is the attractiveness of the SNB’s auction rate compared to the prevailing interbank market repo rate. Further, the question is addressed whether the bidding behavior changed in the financial market crisis of 2007/2008. There is little evidence of a systematic change in bidding behavior in the crisis. This results from the fact that the SNB has addressed the volatile demand for reserves in the crisis with overnight fine-tuning operations.     

Interbank liquidity risk transmission to large emerging markets in crisis periods

In this paper, we conduct two investigations regarding funding liquidity risk in large emerging economies: Brazil, Russia, India, China, and South Africa — BRICS. In the first, we track the relevance of monetary policy decisions originating in developed economies for interbank funding liquidity risk in BRICS economies during crisis periods by applying a time-varying parameter model in a Bayesian framework. The results indicate weak associations between interbank credit market and US monetary policy and market conditions. In contrast, the Federal Reserve's National Financial Conditions Index (NFCI) — a representative of the health of both real and financial sectors in the US — matters more. The temporal patterns of the results imply that key central banking decisions precede or coincide with low degrees of associations. In the second, we examine whether interbank credit crunch exerts an influence on market liquidity risk in BRICS economies using a Granger causality approach. The results reveal that interbank credit crunch depresses market liquidity in the corresponding domestic market and that the state of fear and credit market conditions in the US exert some influence in this regard. Overall, our findings hint at judicious market intervention and liquidity management by BRICS central banks.     

失信风险传染会影响债券定价吗？——基于担保网络大数据的实证研究

在债券定价研究中不仅应该考虑企业自身的信用风险,还应该考虑相关网络组织的传染风险。本文基于43万笔非金融企业间的担保数据,构建了企业信用担保网络,发现失信风险作为一种广义的信用风险,在担保网络中具有传染效应,该传染效应能够影响债券的信用利差。企业的失信行为产生了三类传染效应,一是直接传染效应,无论是发债主体的担保人出现失信行为,还是被担保人出现失信行为,都会引起发债主体的信用利差上升;二是局部感染效应,如果局部担保网络中失信主体的占比提升,可能引起投资者对发债主体的“团体处罚”,导致信用利差上升;三是全局扩散效应,失信信息沿担保网络向整个市场扩散,导致债券信用利差上升。从企业所有制来看,民营企业主要受微观的直接传染效应和中观的局部感染效应影响;而国有企业主要受全局扩散效应影响;被担保人的失信风险对两类企业都有显著影响。失信风险传染效应会降低企业的再融资能力,其中局部感染效应导致企业次年的借款融资额下降,全局扩散效应导致企业次年的债券融资额下降。     

Assessing systemic risk using interbank exposures in the global banking system

This paper contributes to the literature on systemic risk by examining the network structure of bilateral exposures in the global banking system. The global interbank market constitutes a major part of the global banking system. The market has a hierarchical network structure, composed of the national or jurisdictional area's local markets and the cross-border interbank market. First, we estimate the bilateral exposures matrix using aggregate financial data on loans and deposits from Bankscope and analyze the interconnectedness in the market using network centrality measures. Subsequently, for the model analysis, we apply the Eisenberg–Noe framework to a multi-period setting. In this framework, bank defaults are classified into stand-alone defaults and contagious defaults. The banks in our sample (i.e., the top 202 banks with more than $50 billion in total assets) comprise a major part of this global banking system. The main findings are as follows: The theoretical network analysis using network centrality measures showed that most of the banks designated as global systemically important banks (G-SIBs) play a central role in the global interbank market. The theoretical default analysis showed a few contagious defaults triggered by the basic defaults during and after the global financial crisis. Our stress test proved that many G-SIBs theoretically caused 1–6 contagious defaults. Our methodology would assist in the development of a monitoring system by the respective supervisory authorities as well as in the implementation of bank-internal stress tests of default contagion.     

票据市场利率体系及其与银行间货币市场整体利率的关系

我国的商业汇票利率体系主要由承兑费率、贴现利率、转贴现利率和再贴现利率构成。其中作为银行间市场业务的票据转贴现，其利率已实现市场化。在监管部门加大力度规范会计科目核算、严查逃避信贷规模的票据业务后，买断性日趋明显，其利率更多受到信贷规模影响，与其它银行间货币市场利率产生了一定背离；回购式转贴现业务则逐步脱离规模互转方式，近期呈现了较强的资金业务特性，利率水平逐步接轨其它银行间货币市场利率。     

商业银行流动性危机传染机理研究

银行危机传染往往给一个国家或地区的经济带来巨大的损失.不完全的银行间拆借市场中隐含了更大的银行危机传染的可能性;银行间的长期资产越多,银行间拆借的短期利率和银行间存款的长期利率越高,银行间拆借市场就越稳定,在遭受流动性冲击时,这一市场发生银行危机传染的可能性就越小.适量的银行存款对传染效应具有阻碍作用.为防范系统性风险,中国商业银行应逐步建立完备的银行间存款市场,减少政府干预,让市场约束力来强化商业银行的风险管理意识.     

Interbank interest rates: Funding liquidity risk and XIBOR basis spreads

This article presents a theoretical model for interbank money market (XIBOR) rates that endogenously generates the basis spreads that characterize post-crisis fixed income markets: XIBOR-OIS spreads, tenor basis spreads, and the forward basis. Our approach is based on an explicit modeling of interbank cash transactions where interbank credit and liquidity risk are factored in. The framework of this article offers a consistent, arbitrage-free explanation for the emergence of basis spreads. We also demonstrate that funding liquidity is a key determinant of post-crisis XIBOR rates and, in particular, tenor basis spreads.     

Credit Contagion from Counterparty Risk

Standard credit risk models cannot explain the observed clustering of default, sometimes described as "credit contagion." This paper provides the first empirical analysis of credit contagion via direct counterparty effects. We find that bankruptcy announcements cause negative abnormal equity returns and increases in CDS spreads for creditors. In addition, creditors with large exposures are more likely to suffer from financial distress later. This suggests that counterparty risk is a potential additional channel of credit contagion. Indeed, the fear of counterparty defaults among financial institutions explains the sudden worsening of the credit crisis after the Lehman bankruptcy in September 2008.     

Completeness,interconnectedness and distribution of interbank exposures—a parameterized analysis of the stability of financial networks

This paper assesses the impact of a certain structure of interbank exposures on the stability of a stylized financial system. Given a certain balance sheet structure of financial institutions, a large number of valid matrices of interbank exposures is created by a random generator. Assuming a certain loss given default, domino effects are simulated. The main results are, first, that financial stability depends not only on the completeness and interconnectedness of the network, but also on the distribution of interbank exposures within the system (measured by entropy). Second, looking at random graphs, the sign of the correlation between the degree of equality of the distribution of claims and financial stability depends on the connectivity of the financial system as well as on additional parameters that affect the vulnerability of the system to interbank contagion. Third, the more concentrated the assets are within a money center model, the less stable it is. Fourth, a money center model with asset concentration among core banks is less stable than a random graph with banks of homogeneous size.