Bank networks: Contagion, systemic risk and prudential policy

Iñaki Aldasoro, Domenico Delli Gatti, Ester Faia

Risultato della ricerca: Contributo in rivistaArticolo in rivista

27 Citazioni (Scopus)


We present a network model of the interbank market in which optimizing risk averse banks lend to each other and invest in non-liquid assets. Market clearing takes place through a tâtonnement process which yields the equilibrium price, while traded quantities are determined by means of an assortative matching process. Contagion occurs through liquidity hoarding, interbank interlinkages and fire sale externalities. The resulting network configuration exhibits a core-periphery structure, dis-assortative behavior and low density. Within this framework we analyze the effects of a stylized set of prudential policies on the stability/efficiency trade-off. Liquidity requirements unequivocally decrease systemic risk, but at the cost of lower efficiency (measured by aggregate investment in non-liquid assets). Equity requirements also tend to reduce risk (hence increase stability), though without reducing significantly overall investment. On this basis, our results provide general support for the Basel III approach based on complementary regulatory metrics.
Lingua originaleEnglish
pagine (da-a)164-188
Numero di pagine25
Stato di pubblicazionePubblicato - 2017


  • Banking networks
  • Contagion
  • Economics and Econometrics
  • Fire sales
  • Organizational Behavior and Human Resource Management
  • Prudential regulation
  • Systemic risk


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