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SUMMARY:Market Procyclicality and Systemic Risk - Battiston\, S (Universit
 t Zrich)
DTSTART:20140827T104500Z
DTEND:20140827T111500Z
UID:TALK53893@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:We model the systemic risk associated with the so-called balan
 ce-sheet amplica-\ntion mechanism in a system of banks with interlocked ba
 lance sheets and with posi-\ntions in real-economy-related assets. Our mod
 eling framework integrates a stochas-\ntic price dynamics with an active b
 alance-sheet management aimed to maintain\nthe Value-at-Risk at a target l
 evel. We nd that a strong compliance with capi-\ntal requirements\, usuall
 y alleged to be procyclical\, does not increase systemic risk\nunless the 
 asset market is illiquid. Conversely\, when the asset market is illiquid\,
 \neven a weak compliance with capital requirements increases signicantly s
 ystemic\nrisk. Our ndings have implications in terms of possible macro-pru
 dential policies\nto mitigate systemic risk.\n
LOCATION:Seminar Room 1\, Newton Institute
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