## Denmark: Financial Sector Assessment Program-Technical Note-Financial Sector Interconnectedness and Contagion Risk Analysis

_IMF Staff Country Reports, August 12, 2020_

## Source details

**Canonical URL:** [Denmark: Financial Sector Assessment Program-Technical Note-Financial Sector Interconnectedness and Contagion Risk Analysis](https://www.imf.org/en/publications/cr/issues/2020/08/07/denmark-financial-sector-assessment-program-technical-note-financial-sector-49666)

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## Bibliographic details
- Published: August 12, 2020
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513553061.002

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### Overview
- The FSAP developed a novel multi-layer contagion model to analyze financial system interconnectedness using a new and comprehensive database.
- The infrastructure is based on securities data and newly-released confidential credit register data.
- The simulation exercise consists of a series of idiosyncratic shocks, where the default of each node is triggered iteratively.
- The model introduces a repricing channel on traded securities to capture cascade effects arising from market reactions to changes in an entity’s solvency condition.

### Model and Data
- Multi-layer contagion model distinguishing transmission of shocks between eight exposure types or layers:
  - loans
  - deposits
  - reverse repos
  - covered bonds
  - other debt securities
  - equities
  - unlisted shares
  - other claims
- Data sources:
  - securities data
  - newly-released confidential credit register data

### Scope and Coverage
- Primary focus:
  - the banking system (banks and MCIs)
  - interconnections through the covered bond market as cornerstones of the overall financial system
- Additional included exposures:
  - non-bank financial institutions (insurer, pension and investment funds)
  - non-financial sectors (households, corporates)
  - exposures both domestically and abroad

### Simulation Design and Mechanisms
- Iterative idiosyncratic shock framework: each node’s default is triggered iteratively to assess contagion.
- Repricing channel on traded securities to capture market-driven cascade effects linked to changes in solvency.
- Distinguishes transmission across multiple exposure types to capture cross-market spillovers (e.g., loans versus securities versus covered bonds).

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## Content in this bundle

- **1dnkea2020007**
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_Source: https://www.imf.org/en/publications/cr/issues/2020/08/07/denmark-financial-sector-assessment-program-technical-note-financial-sector-49666_