IMF Working Papers Volume 2014 Issue 237: Centrality-based Capital Allocations (2014)

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Centrality-based Capital Allocations

Author:

Mr. Adrian Alter

Mr. Adrian Alter
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https://orcid.org/0000-0003-4752-4808

Ben Craig

Ben Craignull

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, and

Peter Raupach

Peter Raupachnull

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Series:: IMF Working Papers

Volume/Issue:: Volume 2014: Issue 237

Language:: English

Publication Date:: 24 Dec 2014

DOI:: https://doi.org/10.5089/9781498315548.001

ISBN:: 9781498315548

ISSN:: 1018-5941

Pages:: 40

Keywords:: WP; banking system; interbank market; interconnectedness; systemic risk; SIFIs; network analysis; capital allocation; bank default; capital requirement; equity holder; IB exposure; bank PDs; default probability; way bank; interbank asset; capital reallocation; bank equity holder; Loans; Credit; Credit risk; Commercial banks; Interbank markets; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 2014: Issue 237

Language:: English

Publication Date:: 24 Dec 2014

DOI:: https://doi.org/10.5089/9781498315548.001

ISBN:: 9781498315548

ISSN:: 1018-5941

Pages:: 40

Keywords:: WP; banking system; interbank market; interconnectedness; systemic risk; SIFIs; network analysis; capital allocation; bank default; capital requirement; equity holder; IB exposure; bank PDs; default probability; way bank; interbank asset; capital reallocation; bank equity holder; Loans; Credit; Credit risk; Commercial banks; Interbank markets; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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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.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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