Interbank Exposures: An Empirical Examination of Systemic Risk in the Belgian Banking System

H.A. Degryse, G. Nguyen

Research output: Working paperDiscussion paperOther research output

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Abstract

Robust (cross-border) interbank markets are important for the well functioning of modern financial systems.Yet, a network of interbank exposures may lead to domino effects following the event of an initial bank failure.The structure of the interbank market is a potential important driving factor in the risk and impact of interbank contagion.We investigate the evolution of contagion risk for the Belgian banking system over the period 1993-2002 using detailed information on aggregate interbank exposures of individual banks and on large bilateral interbank exposures.We find that a change from a complete structure (where all banks have symmetric links) towards a multiple money centre structure (where the money centres are symmetrically linked to some banks, which are themselves not linked together) as well as a more concentrated banking market have decreased the risk and impact of contagion.Moreover, an increase in the proportion of cross-border interbank assets has lowered the risk and impact of local contagion.Yet, this reduction was probably accompanied by an increase in contagion risk generated by foreign banks, although even here the contagion risk appears fairly limited.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages53
Volume2004-4
Publication statusPublished - 2004

Publication series

NameCentER Discussion Paper
Volume2004-4

Fingerprint

Banking risk
Contagion
Systemic risk
Banking system
Cross-border
Interbank market
Functioning
Assets
Financial system
Foreign banks
Bank failure
Banking
Bilateral
Factors
Proportion

Keywords

  • banking systems
  • risk
  • stability
  • monetary integration

Cite this

Degryse, H. A., & Nguyen, G. (2004). Interbank Exposures: An Empirical Examination of Systemic Risk in the Belgian Banking System. (CentER Discussion Paper; Vol. 2004-4). Tilburg: Finance.
Degryse, H.A. ; Nguyen, G. / Interbank Exposures : An Empirical Examination of Systemic Risk in the Belgian Banking System. Tilburg : Finance, 2004. (CentER Discussion Paper).
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abstract = "Robust (cross-border) interbank markets are important for the well functioning of modern financial systems.Yet, a network of interbank exposures may lead to domino effects following the event of an initial bank failure.The structure of the interbank market is a potential important driving factor in the risk and impact of interbank contagion.We investigate the evolution of contagion risk for the Belgian banking system over the period 1993-2002 using detailed information on aggregate interbank exposures of individual banks and on large bilateral interbank exposures.We find that a change from a complete structure (where all banks have symmetric links) towards a multiple money centre structure (where the money centres are symmetrically linked to some banks, which are themselves not linked together) as well as a more concentrated banking market have decreased the risk and impact of contagion.Moreover, an increase in the proportion of cross-border interbank assets has lowered the risk and impact of local contagion.Yet, this reduction was probably accompanied by an increase in contagion risk generated by foreign banks, although even here the contagion risk appears fairly limited.",
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Degryse, HA & Nguyen, G 2004 'Interbank Exposures: An Empirical Examination of Systemic Risk in the Belgian Banking System' CentER Discussion Paper, vol. 2004-4, Finance, Tilburg.

Interbank Exposures : An Empirical Examination of Systemic Risk in the Belgian Banking System. / Degryse, H.A.; Nguyen, G.

Tilburg : Finance, 2004. (CentER Discussion Paper; Vol. 2004-4).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Interbank Exposures

T2 - An Empirical Examination of Systemic Risk in the Belgian Banking System

AU - Degryse, H.A.

AU - Nguyen, G.

N1 - Subsequently published in the International Journal of Central Banking in 2007 (rt) Pagination: 53

PY - 2004

Y1 - 2004

N2 - Robust (cross-border) interbank markets are important for the well functioning of modern financial systems.Yet, a network of interbank exposures may lead to domino effects following the event of an initial bank failure.The structure of the interbank market is a potential important driving factor in the risk and impact of interbank contagion.We investigate the evolution of contagion risk for the Belgian banking system over the period 1993-2002 using detailed information on aggregate interbank exposures of individual banks and on large bilateral interbank exposures.We find that a change from a complete structure (where all banks have symmetric links) towards a multiple money centre structure (where the money centres are symmetrically linked to some banks, which are themselves not linked together) as well as a more concentrated banking market have decreased the risk and impact of contagion.Moreover, an increase in the proportion of cross-border interbank assets has lowered the risk and impact of local contagion.Yet, this reduction was probably accompanied by an increase in contagion risk generated by foreign banks, although even here the contagion risk appears fairly limited.

AB - Robust (cross-border) interbank markets are important for the well functioning of modern financial systems.Yet, a network of interbank exposures may lead to domino effects following the event of an initial bank failure.The structure of the interbank market is a potential important driving factor in the risk and impact of interbank contagion.We investigate the evolution of contagion risk for the Belgian banking system over the period 1993-2002 using detailed information on aggregate interbank exposures of individual banks and on large bilateral interbank exposures.We find that a change from a complete structure (where all banks have symmetric links) towards a multiple money centre structure (where the money centres are symmetrically linked to some banks, which are themselves not linked together) as well as a more concentrated banking market have decreased the risk and impact of contagion.Moreover, an increase in the proportion of cross-border interbank assets has lowered the risk and impact of local contagion.Yet, this reduction was probably accompanied by an increase in contagion risk generated by foreign banks, although even here the contagion risk appears fairly limited.

KW - banking systems

KW - risk

KW - stability

KW - monetary integration

M3 - Discussion paper

VL - 2004-4

T3 - CentER Discussion Paper

BT - Interbank Exposures

PB - Finance

CY - Tilburg

ER -

Degryse HA, Nguyen G. Interbank Exposures: An Empirical Examination of Systemic Risk in the Belgian Banking System. Tilburg: Finance. 2004. (CentER Discussion Paper).