Fragility and contagion within European Union's banking system: The network prospective

Muhammad Mohsin Hakeem, Ken Ichi Suzuki

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

The 2007 to 2009 financial crises also known as 'global financial crisis' has shown the importance of contagion and interconnectedness among financial nodes. This trickles down the crisis effect to small nodes and whole system becomes fragile. We analysed selected EU members banking system network in terms of their pre- and post-crisis status. By using the matrix of bilateral obligations and their capital levels, conducted stress test simulations for both periods. Different levels of shocks entail most aspects of stress tests in terms of identifying networks strength and interconnectedness. Short-terms to long-term clearing scenarios are used to identify strong and weak nodes within system during both time frames. Default probabilities for different levels of shocks shows realistic picture of the banking systems, as they received huge bailouts and financing from governments and regulators. Default probabilities are used to identify the level of difficulty faced by particular institution or whole system.

Original languageEnglish
Pages (from-to)115-131
Number of pages17
JournalInternational Journal of Monetary Economics and Finance
Volume9
Issue number2
DOIs
Publication statusPublished - 2016 Jan 1

Keywords

  • Banking network
  • Bilateral exposures
  • Contagion
  • Credit shock
  • Economic policy

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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