Caccioli, F;
Ferrara, G;
Ramadiah, A;
(2024)
Modelling fire sale contagion across banks and non-banks.
Journal of Financial Stability
, 71
, Article 101231. 10.1016/j.jfs.2024.101231.
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Abstract
We examine the impact of fire sales on the UK financial system through commonly held assets across different financial sectors. In particular, we model indirect contagion via fire sales across UK banks and non-banks subject to different types of constraints. We find that performing a stress simulation that does not account for common asset holdings across multiple sectors can severely underestimate the fire sale losses in the financial system. In addition, pro-rata liquidation strategy would result in a higher level of fire sale losses in the system as whole, but a waterfall strategy may produce a higher spillover effect for a passive institution (or a passive sector) that chooses not to promptly liquidate any of its assets during distress while other institutions decide to do so.
| Type: | Article |
|---|---|
| Title: | Modelling fire sale contagion across banks and non-banks |
| DOI: | 10.1016/j.jfs.2024.101231 |
| Publisher version: | https://doi.org/10.1016/j.jfs.2024.101231 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Common asset holdings; fire sales; financial contagion; systemic risk |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10188127 |
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