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CoMap: mapping contagion in the euro area banking sector

The IMF paper presents a novel approach to investigate and model the network of euro area banks’ large exposures within the global banking system. It documents the degree of interconnectedness and systemic risk based on bilateral linkages. The authors find that tipping points shifting the euro area banking system from a less vulnerable to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics.

IMF working paper No. 19/102
10 May 2019
Source: International Monetary Fund

Authors:
Giovanni Covi, European Central Bank
Mehmet Ziya Gorpe, International Monetary Fund
Christoffer Kok, European Central Bank

>  CoMap: mapping contagion in the euro area banking sector

Abstract:

This paper presents a novel approach to investigate and model the network of euro area banks’ large exposures within the global banking system. Drawing on a unique dataset, the paper documents the degree of interconnectedness and systemic risk of the euro area banking system based on bilateral linkages. We develop a Contagion Mapping model fully calibrated with bank-level data to study the contagion potential of an exogenous shock via credit and funding risks. We find that tipping points shifting the euro area banking system from a less vulnerable state to a highly vulnerable state are a non-linear function of the combination of network structures and bank-specific characteristics.

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