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Towards a Framework for Quantifying Systemic Stability

Author

Listed:
  • Piergiorgio Alessandri

    (Bank of England)

  • Prasanna Gai

    (Australian National University)

  • Sujit Kapadia

    (Bank of England)

  • Nada Mora

    (Bank of England)

  • Claus Puhr

    (Oesterreichische Nationalbank)

Abstract
This paper describes a prototype quantitative framework for gauging systemic risk which explicitly characterizes banks’ balance sheets and allows for macro credit risk, interest income risk, market risk, network interactions, and asset-side feedback effects. In presenting our results, we focus on projections for systemwide banking assets in the United Kingdom, considering both unconditional distributions and stress scenarios.We show how a combination of extreme credit and trading losses can precipitate fundamental defaults and trigger contagious default associated with network effects and fire sales of distressed assets. Despite the joint normality of all risk factors, the model generates a bimodal asset distribution.

Suggested Citation

  • Piergiorgio Alessandri & Prasanna Gai & Sujit Kapadia & Nada Mora & Claus Puhr, 2009. "Towards a Framework for Quantifying Systemic Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 47-81, September.
    • Handle: RePEc:ijc:ijcjou:y:2009:q:3:a:2
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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