All Rights Reserved
AccessEcon LLC 2006, 2008.
Powered by MinhViet JSC
ralph lauren polo

 
Edoardo Gaffeo, Lucio Gobbi and Massimo Molinari
 
''Liquidity contagion with a “first-in/first-out” seniority of claims''
( 2019, Vol. 39 No.4 )
 
 
Building upon Lee (2013), this paper puts forward a methodological issue and presents a simple numerical example showing that the extent of systemic liquidity shortages due to a contagious funding run is strictly dependent on the seniority assigned to the different categories of claimants wishing to withdraw funds from financial intermediaries. In more detail, we find that a clearing payment algorithm based on the priority of interbank debt over depositors is found to potentially underestimate such liquidity shortages, if compared to a seniority rule working the other way round. This aspect may be of interest for supervisors implementing macro-prudential stress-testing exercises.
 
 
Keywords: Financial contagion, Seniority of payments, Liquidity shortages
JEL: G2 - Financial Institutions and Services: General
C6 - Mathematical Methods and Programming: General
 
Manuscript Received : Dec 11 2018 Manuscript Accepted : Nov 12 2019

  This abstract has been downloaded 147 times                The Full PDF of this paper has been downloaded 106172 times