A structural model of interbank network formation and contagion
File(s)
Accepted version
Author(s)
Coen, Jamie
Coen, Patrick
Type
Journal Article
Abstract
We study the equilibrium relationship between interbank exposures and bank default risk: how exposures affect risk, and how banks account for this when forming the
exposures network. We leverage novel data on aggregate interbank exposures across multiple types of financial instrument. We find that contagion is material (risk would be 0.2% higher if exposures increased by 1%) but that banks account for this in equilibrium (risk would be 10% higher if they did not). We also find systematic heterogeneity in contagion based on the characteristics of the banks involved, with implications for the identification of systemically important banks and regulation.
exposures network. We leverage novel data on aggregate interbank exposures across multiple types of financial instrument. We find that contagion is material (risk would be 0.2% higher if exposures increased by 1%) but that banks account for this in equilibrium (risk would be 10% higher if they did not). We also find systematic heterogeneity in contagion based on the characteristics of the banks involved, with implications for the identification of systemically important banks and regulation.
Date Acceptance
2026-02-25
Citation
Journal of Financial Economics
ISSN
0304-405X
Publisher
Elsevier
Journal / Book Title
Journal of Financial Economics
Copyright Statement
Copyright This paper is embargoed until publication. Once published the author’s accepted manuscript will be made available under a CC-BY License in accordance with Imperial’s Research Publications Open Access policy (www.imperial.ac.uk/oa-policy).
License URL
Publication Status
Accepted