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SUMMARY:Quantifying contagion in funding markets: An application to stress
 -testing - Anand\, K (Bank of Canada)
DTSTART:20140924T153000Z
DTEND:20140924T161500Z
UID:TALK54494@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:In the aftermath of the financial crisis\, stress-testing has 
 become\nmandatory for banks. We propose a tractable model at the frontier 
 of\nsystemic risk stress-testing. Our theoretically-based stress-testing\n
 framework integrates credit risk\, liquidity risk and contagion risk.\nWe 
 contribute to the literature in different ways. We first generalize\nthe t
 heoretical contagion results of Manz (2010) to an N-banks world\,\nshow th
 e uniqueness and existence of an equilibrium in that context\,\nand charac
 terize the contagion dynamics. We then quantify the\npotential important c
 ontribution of information contagion to systemic\nrisk and illustrates why
  ensuring that each bank is liquid when\nconsidered in isolation is not en
 ough. Each bank must also be\nsufficiently liquid to resist to contagion e
 ffects. Finally\, we\nillustrates how crucial are market participants’ b
 eliefs about an\neventual central bank intervention in the unfolding of ev
 ents when the\nfinancial system is in a fragile state.\n
LOCATION:Seminar Room 1\, Newton Institute
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