Centrality-based Capital Allocations

Author/Editor:

Adrian Alter ; Ben Craig ; Peter Raupach

Publication Date:

December 24, 2014

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We look at the effect of capital rules on a banking system that is connected through correlated credit exposures and interbank lending. The rules, which combine individual bank characteristics and interconnectivity measures of interbank lending, are to minimize a measure of system-wide losses. Using the detailed German Credit Register for estimation, we find capital rules based on eigenvectors to dominate any other centrality measure, followed by closeness. Compared to the baseline case, capital reallocation based on the Adjacency Eigenvector saves about 15% in system losses as measured by expected bankruptcy costs.

Series:

Working Paper No. 14/237

Subject:

English

Publication Date:

December 24, 2014

ISBN/ISSN:

9781498315548/1018-5941

Stock No:

WPIEA2014237

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

40

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