eprintid: 1544795
rev_number: 25
eprint_status: archive
userid: 608
dir: disk0/01/54/47/95
datestamp: 2017-03-11 23:45:38
lastmod: 2021-10-16 22:08:08
status_changed: 2017-12-07 14:35:31
type: article
metadata_visibility: show
creators_name: Grigat, D
creators_name: Caccioli, F
title: Reverse stress testing interbank networks
ispublished: pub
divisions: UCL
divisions: B04
divisions: C05
divisions: F48
keywords: Science & Technology, Multidisciplinary Sciences, Science & Technology - Other Topics, SYSTEMIC RISK, OVERLAPPING PORTFOLIOS, FINANCIAL STABILITY, COMPLEX NETWORKS, CONTAGION, MARKET
note: Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/.
abstract: We reverse engineer dynamics of financial contagion to find the scenario of smallest exogenous shock that, should it occur, would lead to a given final systemic loss. This reverse stress test can be used to identify the potential triggers of systemic events, and it removes the arbitrariness in the selection of shock scenarios in stress testing. We consider in particular the case of distress propagation in an interbank market, and we study a network of 44 European banks, which we reconstruct using data collected from banks statements. By looking at the distribution across banks of the size of smallest exogenous shocks we rank banks in terms of their systemic importance, and we show the effectiveness of a policy with capital requirements based on this ranking. We also study the properties of smallest exogenous shocks as a function of the parameters that determine the endogenous amplification of shocks. We find that the size of smallest exogenous shocks reduces and that the distribution across banks becomes more localized as the system becomes more unstable.
date: 2017-11-15
date_type: published
publisher: NATURE PUBLISHING GROUP
official_url: http://dx.doi.org/10.1038/s41598-017-14470-1
oa_status: green
full_text_type: pub
language: eng
primo: open
primo_central: open_green
article_type_text: Article
verified: verified_manual
elements_id: 1213028
doi: 10.1038/s41598-017-14470-1
lyricists_name: Caccioli, Fabio
lyricists_id: FCACC19
actors_name: Dewerpe, Marie
actors_id: MDDEW97
actors_role: owner
full_text_status: public
publication: Scientific Reports
volume: 7
article_number: 15616
pages: 11
issn: 2045-2322
citation:        Grigat, D;    Caccioli, F;      (2017)    Reverse stress testing interbank networks.                   Scientific Reports , 7     , Article 15616.  10.1038/s41598-017-14470-1 <https://doi.org/10.1038/s41598-017-14470-1>.       Green open access   
 
document_url: https://discovery.ucl.ac.uk/id/eprint/1544795/1/Caccioli_s41598-017-14470-1.pdf