Filtering for risk assessment of interbank network

Majeed Simaan, Aparna Gupta, Koushik Kar

Research output: Contribution to journalArticle

Abstract

Our paper contributes to the recent macroprudential policy addressing the resilience of financial systems in terms of their interconnectedness. We argue that beneath an interbank market, there is a fundamental latent network that affects the liquidity distributions among banks. To investigate the interbank market, we propose a framework that identifies such latent network using a statistical learning procedure. The framework reverse engineers overnight signals observed as banks conduct their reserve management on a daily basis. Our simulation-based results show that possible disruptions in funds supply are highly affected by the interconnectedness of the latent network. Hence, the proposed framework serves as an early warning system for regulators to monitor the overnight market and to detect ex-ante possible disruptions based on the inherent network characteristics.

Original languageEnglish (US)
Pages (from-to)279-294
Number of pages16
JournalEuropean Journal of Operational Research
Volume280
Issue number1
DOIs
StatePublished - Jan 1 2020

Fingerprint

Alarm systems
Risk Assessment
Risk assessment
Filtering
Engineers
Statistical Learning
Liquidity
Early Warning
Resilience
Regulator
Reverse
Monitor
Framework
Market
Simulation
Banks
Interbank market
Disruption

All Science Journal Classification (ASJC) codes

  • Information Systems and Management
  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research

Cite this

Simaan, Majeed ; Gupta, Aparna ; Kar, Koushik. / Filtering for risk assessment of interbank network. In: European Journal of Operational Research. 2020 ; Vol. 280, No. 1. pp. 279-294.
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Filtering for risk assessment of interbank network. / Simaan, Majeed; Gupta, Aparna; Kar, Koushik.

In: European Journal of Operational Research, Vol. 280, No. 1, 01.01.2020, p. 279-294.

Research output: Contribution to journalArticle

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