Model looks at outbreak of ‘fire sales’
Higher capital ratios may aggravate financial contagion, authors say
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
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