Markose, Sheri M (2012) Systemic Risk from Global Financial Derivatives: A Network Analysis of Contagion and Its Mitigation with Super-Spreader Tax. IMF Working Papers, 12 (282). p. 1. DOI https://doi.org/10.5089/9781475577501.001
Markose, Sheri M (2012) Systemic Risk from Global Financial Derivatives: A Network Analysis of Contagion and Its Mitigation with Super-Spreader Tax. IMF Working Papers, 12 (282). p. 1. DOI https://doi.org/10.5089/9781475577501.001
Markose, Sheri M (2012) Systemic Risk from Global Financial Derivatives: A Network Analysis of Contagion and Its Mitigation with Super-Spreader Tax. IMF Working Papers, 12 (282). p. 1. DOI https://doi.org/10.5089/9781475577501.001
Abstract
Financial network analysis is used to provide firm level bottom-up holistic visualizations of interconnections of financial obligations in global OTC derivatives markets. This helps to identify Systemically Important Financial Intermediaries (SIFIs), analyse the nature of contagion propagation, and also monitor and design ways of increasing robustness in the network. Based on 2009 FDIC and individually collected firm level data covering gross notional, gross positive (negative) fair value and the netted derivatives assets and liabilities for 202 financial firms which includes 20 SIFIs, the bilateral flows are empirically calibrated to reflect data-based constraints. This produces a tiered network with a distinct highly clustered central core of 12 SIFIs that account for 78 percent of all bilateral exposures and a large number of financial intermediaries (FIs) on the periphery. The topology of the network results in the “Too- Interconnected-To-Fail” (TITF) phenomenon in that the failure of any member of the central tier will bring down other members with the contagion coming to an abrupt end when the ‘super-spreaders’ have demised. As these SIFIs account for the bulk of capital in the system, ipso facto no bank among the top tier can be allowed to fail, highlighting the untenable implicit socialized guarantees needed for these markets to operate at their current levels. Systemic risk costs of highly connected SIFIs nodes are not priced into their holding of capital or collateral. An eigenvector centrality based ‘super-spreader’ tax has been designed and tested for its capacity to reduce the potential socialized losses from failure of SIFIs.
Item Type: | Article |
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Additional Information: | Source info: IMF Working Paper No. 12/282 |
Uncontrolled Keywords: | Financial risk; Financial instruments; Financial systems; International capital markets; Nonbank financial sector; Systemic Risk, Financial Network, Too-Interconnected-to-Fail, Eigenvector Centrality, Super Spreader Tax, contagion, financial contagion, collateral |
Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Economics, Department of |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 07 Mar 2013 10:35 |
Last Modified: | 24 Oct 2024 17:43 |
URI: | http://repository.essex.ac.uk/id/eprint/5761 |
Available files
Filename: wp12282.pdf