June 2006 issue contents
Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis - IJCB - June 2006

by Iman van Lelyvelda,b and Franka Liedorpb

Abstract

We investigate interlinkages and contagion risks in the Dutch interbank market. Based on several data sources, including survey data, we estimate the exposures in the interbank market at bank level. Next, we perform a scenario analysis to measure contagion risks. We find that the bankruptcy of one of the large banks will put a considerable burden on the other banks but will not lead to a complete collapse of the interbank market. The exposures to foreign counterparties are large and warrant further research. An important contribution of this paper is that we show, using survey data, that the entropy estimation using large exposures data as applied in many previous papers gives an adequate approximation of the actual linkages between banks. Hence, this methodology does not seem to introduce a bias.

JEL Codes: G15, G20.

 
Full article (PDF, 35 pages 423 kb)


a Nijmegen School of Management, Radboud University 
b Supervisory Policy Division, De Nederlandsche Bank