ECB paper examines agent-based model of system-wide implications of funding risk

Liquidity has its systemic aspect that is frequently neglected in research and risk
management applications. Researcher Grzegorz Hałaj and his team build a model that focuses on systemic aspects of liquidity and its links with solvency conditions accounting for pertinent interactions between market participants in an agent-based modelling fashion.

The model is confronted with data from the 2014 EU stress test covering all the major banking groups in the EU. The potential amplification role of asset managers is taken into account in a stylized fashion. In particular, they investigate the importance of the channels through which the funding shock to financial institutions can spread across the financial system.

Read the working paper

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