A1438
Title: A network approach to macroprudential buffers
Authors: Yuliang Zhang - LSE (United Kingdom) [presenting]
Abstract: Network modelling of systemic risk is used to set macroprudential buffers from an operational perspective. The focus is on the countercyclical capital buffer, an instrument designed to protect the banking sector from periods of excessive growth associated with a build-up of system-wide risk. An indicator of financial vulnerability is constructed with a model of fire sales, which captures the spillover losses in the system caused by deleveraging and joint liquidation of illiquid assets. Using data on the U.S. bank holding companies, it is shown that the indicator is informative about the build-up of vulnerability and can be useful for setting the countercyclical capital buffer.
