Collateralization, leverage, and stressed expected loss

Détails

ID Serval
serval:BIB_F0E822A77CC9
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Titre
Collateralization, leverage, and stressed expected loss
Périodique
Journal of Financial Stability
Auteur(s)
Jondeau E., Khalilzadeh A.
ISSN
1572-3089
Statut éditorial
Publié
Date de publication
02/2017
Peer-reviewed
Oui
Pages
1-18
Langue
anglais
Résumé
We describe a general equilibrium model with a banking system in which the deposit bank collects deposits from households and the merchant bank provides funds to firms. The merchant bank borrows collateralized short-term funds from the deposit bank. In an economic downturn, as the value of collateral decreases, the merchant bank must sell assets on short notice, reinforcing the crisis, and defaults if its cash buffer is insufficient. The deposit bank suffers from losses because of the depreciated assets. If the value of the deposit bank's assets is insufficient to cover deposits, it also defaults. Deposits are insured by the government, with a premium paid by the deposit bank equal to its expected loss on the deposits. We define the bank's capital shortfall in the crisis as the expected loss on deposits under stress. We calibrate the model on the U.S. economy and show how this measure of stressed expected loss behaves for different calibrations of the model. A 40% decline of the securities market would induce a loss of 12.5% in the ex-ante value of deposits.
Mots-clé
Real business cycle, Capital shortfall, Systemic risk, Collateral, Leverage
Création de la notice
18/08/2017 9:21
Dernière modification de la notice
21/08/2019 5:16
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