00000nam 2200000zi 4500 9.891981 CaOODSP 20221107173034 m o d f cr cn||||||||| 201001t20202020oncd ob f000 0 eng d CaOODSP eng rda CaOODSP n-cn--- FB3-5/2020-41E-PDF Feinstein, Zachary S., author. Interbank asset-liability networks with fire sale management / by Zachary Feinstein and Grzegorz Halaj. Ottawa, Ontario, Canada : Bank of Canada = Banque du Canada, 2020. ©2020 1 online resource (ii, 33 pages) : graphs. text txt rdacontent computer c rdamedia online resource cr rdacarrier Staff working paper = Document de travail du personnel, 1701-9397 ; 2020-41 Cover title. "Last updated: September 28, 2020." Includes bibliographical references (pages 23-26). "Interconnectedness is an inherent feature of the modern financial system. While it contributes to efficiency of financial services, it also creates structural vulnerabilities: pernicious shock transmission and amplification impacting banks’ capitalization. This has recently been seen during the Global Financial Crisis. Post-crisis reforms addressed many of the causes of the problems. But contagion effects may not be fully eliminated. One reason for this may be related to financial institutions’ incentives and strategic behaviours. We propose a model to study contagion effects in a banking system, capturing network effects of direct exposures and indirect effects of market behaviour that may impact asset valuation. By doing so, we can embed a well-established fire sale channel into our model. Unlike in related literature, we relax an assumption of an exogenous pecking order of how banks would sell their assets. Instead, banks act rationally in our model; they optimally construct a portfolio subject to budget constraints to raise cash to satisfy creditors (interbank and external). We assume that the guiding principle for banks is to maximize risk-adjusted returns generated by their balance sheets. We parameterize the theoretical model with confidential supervisory data for banks in Canada under the supervision of the Office of the Superintendent of Financial Institutions, which allows us to run simulations of bank valuations and asset prices under a set of stress scenarios"--Abstract, page ii. Banks and banking Canada. Monetary policy Mathematical models. Banques Canada. Politique monétaire Modèles mathématiques. Bank of Canada, issuing body. Staff working paper (Bank of Canada) 1701-9397 ; 2020-41. (CaOODSP)9.806221 PDF 922 KB https://publications.gc.ca/collections/collection_2020/banque-bank-canada/FB3-5-2020-41-eng.pdf