A working paper published by the European Systemic Risk Board examines the outbreak of “fire sales” in a financial sector with both bank and non-bank institutions.

In Simulating fire-sales in a banking and shadow banking system, the three authors present an agent-based model with two kinds of institution: traditional banks; and asset managers.

Both types of institutions hold liquid and illiquid assets, and are funded via equity and deposits, the authors write. Traditional banks are linked