Complexity and Systemic Risk: Hilary Term Seminar Series 2010 cover image

Stability and Complexity in Model Banking Systems

Complexity and Systemic Risk: Hilary Term Seminar Series 2010

CHAPTER

The Probability and Magnitude of Bank Failure

If a bank fails, it then passes on that failure through its connections to other banks. Failure of the bank means it has to sell off some of its assets and people just get worried about what's going on. This affects the normal value of things, marked a market means that it devalues your assets - so it generates liquidity shocks. So if the shock exceeds the net worth gamma, then the bank will fail.

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