Market Procyclicality and Systemic Risk
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About this item
| Description: |
Battiston, S (Universität Zürich)
Wednesday 27 August 2014, 11:45-12:15 |
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| Created: | 2014-08-28 11:56 |
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| Collection: | Systemic Risk: Mathematical Modelling and Interdisciplinary Approaches |
| Publisher: | Isaac Newton Institute |
| Copyright: | Battiston, S |
| Language: | eng (English) |
| Distribution: |
World
(downloadable)
|
| Explicit content: | No |
| Aspect Ratio: | 16:9 |
| Screencast: | No |
| Bumper: | UCS Default |
| Trailer: | UCS Default |
| Abstract: | We model the systemic risk associated with the so-called balance-sheet amplica- tion mechanism in a system of banks with interlocked balance sheets and with posi- tions in real-economy-related assets. Our modeling framework integrates a stochas- tic price dynamics with an active balance-sheet management aimed to maintain the Value-at-Risk at a target level. We nd that a strong compliance with capi- tal requirements, usually alleged to be procyclical, does not increase systemic risk unless the asset market is illiquid. Conversely, when the asset market is illiquid, even a weak compliance with capital requirements increases signicantly systemic risk. Our ndings have implications in terms of possible macro-prudential policies to mitigate systemic risk. |
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