Research Discussion Papers, Bank of Finland
No 19/2013:
Contagion in the interbank network: An epidemiological approach
Mervi Toivanen ()
Abstract: This paper analyses the importance of individual
bank-specific factors on financial stability. First, we use a novel method
to model the spreading of the contagion in the interbank network by
implementing an epidemiologic model. Actual data on European banks is
exploited with simulated scale-free networks. The average contagion
affected 70% and 40% of European banks’ total assets in 2007 and in 2010,
respectively. Country-level results suggest that French, British, German
and Spanish banks are the most contagious ones, whereas banks from Ireland,
Greece and Portugal induce only limited negative effects. Secondly,
cross-sectional panel estimations are performed to disentangle the leading
indicators influencing the level of contagion. Bank clustering, large
incoming interbank loans and bank reputation are more prominent explanatory
variables than the size or leverage. Finally, central banks’ interventions
reduce contagion only slightly.
Keywords: contagion; banks; Europe; interbank; epidemiology; panel regression; (follow links to similar papers)
JEL-Codes: C15; G01; G21; (follow links to similar papers)
41 pages, September 3, 2013
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