Partially Overlapping Ownership and Contagion in Financial Networks
Using historical banking data for the United States from the years 2000 to 2015 we characterize the probability and extent of a financial contagion using a calibrated network model of heterogeneous interbank exposures. Both the probability and the average extent of a contagion begin to rise in 2007...
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| Format: | Article |
| Language: | English |
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Wiley
2017-01-01
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| Series: | Complexity |
| Online Access: | http://dx.doi.org/10.1155/2017/9895632 |
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| _version_ | 1832556463534374912 |
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| author | Micah Pollak Yuanying Guan |
| author_facet | Micah Pollak Yuanying Guan |
| author_sort | Micah Pollak |
| collection | DOAJ |
| description | Using historical banking data for the United States from the years 2000 to 2015 we characterize the probability and extent of a financial contagion using a calibrated network model of heterogeneous interbank exposures. Both the probability and the average extent of a contagion begin to rise in 2007 prior to the US financial crisis. Including a common asset in the model increases both the probability and extent of contagion, especially during the years of the financial crisis. Based on rising institutional ownership in the banking industry, we introduce a partially overlapping ownership asset that devalues endogenously. The addition of this asset increases the extent of a financial contagion. Our results show that trends in capital buffers and the distribution and type of assets have a significant effect on the predictions of financial network contagion models and that the rising trend in ownership of banks by banks amplifies shocks to the financial system. |
| format | Article |
| id | doaj-art-4c5e302721a147098dcf6e4ab49cf641 |
| institution | Kabale University |
| issn | 1076-2787 1099-0526 |
| language | English |
| publishDate | 2017-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Complexity |
| spelling | doaj-art-4c5e302721a147098dcf6e4ab49cf6412025-02-03T05:45:24ZengWileyComplexity1076-27871099-05262017-01-01201710.1155/2017/98956329895632Partially Overlapping Ownership and Contagion in Financial NetworksMicah Pollak0Yuanying Guan1School of Business and Economics, Indiana University Northwest, 3400 Broadway, Gary, IN 46408, USADepartment of Mathematics and Actuarial Science, Indiana University Northwest, 3400 Broadway, Gary, IN 46408, USAUsing historical banking data for the United States from the years 2000 to 2015 we characterize the probability and extent of a financial contagion using a calibrated network model of heterogeneous interbank exposures. Both the probability and the average extent of a contagion begin to rise in 2007 prior to the US financial crisis. Including a common asset in the model increases both the probability and extent of contagion, especially during the years of the financial crisis. Based on rising institutional ownership in the banking industry, we introduce a partially overlapping ownership asset that devalues endogenously. The addition of this asset increases the extent of a financial contagion. Our results show that trends in capital buffers and the distribution and type of assets have a significant effect on the predictions of financial network contagion models and that the rising trend in ownership of banks by banks amplifies shocks to the financial system.http://dx.doi.org/10.1155/2017/9895632 |
| spellingShingle | Micah Pollak Yuanying Guan Partially Overlapping Ownership and Contagion in Financial Networks Complexity |
| title | Partially Overlapping Ownership and Contagion in Financial Networks |
| title_full | Partially Overlapping Ownership and Contagion in Financial Networks |
| title_fullStr | Partially Overlapping Ownership and Contagion in Financial Networks |
| title_full_unstemmed | Partially Overlapping Ownership and Contagion in Financial Networks |
| title_short | Partially Overlapping Ownership and Contagion in Financial Networks |
| title_sort | partially overlapping ownership and contagion in financial networks |
| url | http://dx.doi.org/10.1155/2017/9895632 |
| work_keys_str_mv | AT micahpollak partiallyoverlappingownershipandcontagioninfinancialnetworks AT yuanyingguan partiallyoverlappingownershipandcontagioninfinancialnetworks |