Identifying contagion in a banking network

Morrison, Alan, Wilson, Mungo, Vasios, Michalis and Zikes, Filip (2016) Identifying contagion in a banking network. Saïd Business School Working Paper 2016-37.

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Abstract

We present the first micro-level evidence of the transmission of shocks through financial networks. Using the network of credit default swap (CDS) transactions between banks, we identify bank CDS returns attributable to counterparty losses. A bank's own CDS spread increases whenever counterparties from whom it has purchased default protection themselves experience losses. We find no such effect from losses of non-counterparties, nor from counterparties to whom the bank has sold protection. The effect on bank CDS returns through this counterparty loss channel is large relative to the direct effect on a bank's CDS returns from its own trading losses.

Item Type: Other Working Paper
Keywords: Contagion, counterparty risk, credit default swaps, networks, finance
Subject(s): Finance
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Date Deposited: 13 Feb 2017 10:22
Last Modified: 03 Aug 2017 13:32
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6303

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