Bilateral exposures and systemic solvency risk

Authors


  • Innis Lecture, presented at the Canadian Economics Association annual meetings in June 2012 at Calgary. Gouriéroux is also affiliated with CREST; he gratefully acknowledges financial support of the NSERC Canada and the chair AXA/Risk Foundation: ‘Large Risks in Insurance.’ Héam is also affiliated with CREST. Monfort is also affiliated with Banque de France and University of Maastricht. We are grateful to D. Thesmar, to David Green, and to an anonymous referee for their comments and suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Banque de France or those of the Autorité de Controle Prudentiel (ACP).

Abstract

Abstract By introducing a structure of the balance sheets of the banks, which takes into account their bilateral exposures in terms of stocks or lendings, we get a structural model for default analysis. This model allows us to distinguish the exogenous and endogenous default dependence. We prove the existence and uniqueness of the liquidation equilibrium, we study the consequences of exogenous shocks on the banking system and we measure contagion phenomena. This approach is illustrated by an application to the French banking system.

Abstract

En utilisant une structure des états financiers des banques qui tient compte de leurs expositions bilatérales en termes d’actions et de prêts, on développe un modèle structurel de faillite. Ce modèle permet de distinguer les facteurs exogènes et endogènes dont dépend la faillite. On prouve l’existence et l’unicité de l’équilibre de liquidation, on étudie les conséquences des chocs exogènes sur le système bancaire, et on mesure le phénomène de contagion. On illustre l’usage de cette approche en l’appliquant au système bancaire français.

Ancillary