Bank Network Analysis in the ECCU

IMF Working Papers, July 12, 2018

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Bank Network Analysis in the ECCU

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Bibliographic details

• Authors: Balazs Csonto, Alejandro D Guerson, Alla Myrvoda, Emefa Sewordor
• Published: July 12, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484367506.001

Objective and scope

• Applies network analysis to assess the extent of systemic vulnerabilities in the ECCU banking system.
• Uses two sets of illustrative stress tests:
  • Solvency and liquidity shocks to each individual bank and the impact on other banks in the network through their bilateral net asset exposures.
  • Country and region-wide tail shocks to GDP affecting capital and liquidity of all banks in the shocked jurisdictions, followed by the rippling effects through the regional network.

Methodology and scenarios

• Network analysis based on bilateral net asset exposures among banks.
• Stress-test scenarios:
  • Individual-bank solvency and liquidity shocks and subsequent propagation via bilateral exposures.
  • Jurisdiction-level and region-wide tail GDP shocks affecting bank capital and liquidity, with subsequent network spillovers.

Key findings and interpretations

• The analysis identifies systemic institutions that merit heightened attention by the regulator.
• Systemic importance is determined by:
  • The degree of connectivity with the rest of the system.
  • The extent to which an institution is vulnerable to the failure of other banks.
• Illustrative stress tests show that both direct bilateral exposures and economy-wide tail shocks can generate rippling effects across the regional banking network.

Policy implications and recommendations

• Regulators should monitor institutions with high connectivity within the network more closely due to their potential to propagate shocks.
• Supervisory attention should consider both:
  • Direct bilateral exposure channels among banks.
  • Indirect channels arising from common exposure to jurisdictional GDP shocks that affect capital and liquidity across banks.

Content in this bundle

• Bank Network Analysis in the ECCU, WP/18/162, July 2018
  • Bank Network Analysis in the ECCU, WP/18/162, July 2018 (Markdown version)
  • Bank Network Analysis in the ECCU, WP/18/162, July 2018 (PDF)