Regensburg 2013 – wissenschaftliches Programm

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 2: Financial Markets and Risk Management I

SOE 2.2: Vortrag

Montag, 11. März 2013, 10:15–10:30, H37

Systematic analysis of system-caused systemic risk — •Lasse Loepfe¹, Antonio Cabrales², and Angel Sanchez¹ — ¹Grupo Interdisciplinar de Sistemas Complejos (GISC), Departamento de Matemáticas, Universidad Carlos III de Madrid, 28911 Leganés, Spain — ²Department of Economics, Universidad Carlos III de Madrid, Madrid 126, 28903 Getafe, Spain

In response to the 2007-2008 financial crisis the consensus among policymakers increased that a macroprudential approach to regulation and supervision should be adopted. The currently preferred policy option is the regulation of capital requirements, with the main focus on combating procyclicality and on identifying the banks that have a high systemic importance, those that are too 'big to fail'. Here we argue that the concept of systemic risk should not be limited to assessing the relative contribution of individual firms to the total risk, but include the analysis of the system as a whole. In a thorough study going from analytical models to empirical data, we systematically explore the effects of network topology on the overall resistance to external shocks. We show that more connected networks are more robust to small tailed shock distributions but more vulnerable to fat tailed shock distributions. The amount of Tier 1 capital required to reduce risk to a given level therefore greatly depends on the topology of the whole system. Other network properties, such as assortativity or clustering had only a minor influence on shock resistance. Vulnerability decreased with firm size heterogeneity when shocks were random, but increased when they were directed at the largest firms.