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Centrality-based Capital Allocations, Adrian Alter, Ben Craig, Peter Raupach

We look at the effect of capital rules on a banking system that is connected through correlated credit exposures and interbank lending. The rules, which combine individual bank characteristics and interconnectivity measures of interbank lending, are to minimize a measure of system-wide losses. Using the detailed German Credit Register for estimation, we find capital rules based on eigenvectors to dominate any other centrality measure, followed by closeness. Compared to the baseline case, capital reallocation based on the Adjacency Eigenvector saves about 15% in system losses as measured by expected bankruptcy costs
Table Of Contents
Cover; Contents; I. Introduction; II. Methodology; A. Credit risk model; A.1. Large loans; A.2. Small loans; B. Centrality measures; III. Data sources; A. Large-Exposures Database (LED); B. Borrower and balance sheet statistics; C. Market data; D. The German interbank market; IV. Modeling contagion; A. Bankruptcy costs; V. Optimization; VI. Results; VII. Conclusion
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (41 p.)
Specific Material Designation
Form Of Item

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