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Martin Summer

Bio: Martin Summer is an academic researcher from University of Vienna. The author has contributed to research in topics: Systemic risk & Interbank lending market. The author has an hindex of 20, co-authored 49 publications receiving 3137 citations.

Papers
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Journal ArticleDOI
TL;DR: In this article, the authors provide an empirical analysis of the network structure of the Austrian interbank market based on Austrian Central Bank (OeNB) data and find that the degree distributions of the interbank network follow power laws.
Abstract: We provide an empirical analysis of the network structure of the Austrian interbank market based on Austrian Central Bank (OeNB) data. The interbank market is interpreted as a network where banks are nodes and the claims and liabilities between banks define the links. This allows us to apply methods from general network theory. We find that the degree distributions of the interbank network follow power laws. Given this result we discuss how the network structure affects the stability of the banking system with respect to the elimination of a node in the network, i.e. the default of a single bank. Further, the interbank liability network shows a community structure that exactly mirrors the regional and sectoral organization of the current Austrian banking system. The banking network has the typical structural features found in numerous other complex real-world networks: a low clustering coefficient and a short average path length. These empirical findings are in marked contrast to the network structures th...

836 citations

Journal ArticleDOI
TL;DR: It is found that correlation in banks' asset portfolios dominates contagion as the main source of systemic risk and the “value at risk” for a lender of last resort is surprisingly small.
Abstract: We propose a new approach to assess the financial stability of an entire banking system using standard tools from modern risk management in combination with a network model of inter-bank loans. Rather than looking at banks individually, we analyze risk at the level of the banking system as a whole. We apply our model to a unique dataset of all Austrian banks. We find that correlation in banks' asset portfolios dominates contagion as the main source of systemic risk. Contagion occurs rarely but can wipe out a major part of the banking system. Low bankruptcy costs and an efficient crisis resolution policy are crucial to limit the system wide impact of contagious default events. We compute the "value at risk" for a lender of last resort and find the necessary funds to prevent contagion to be surprisingly small. More diversification in the inter-bank market does not necessarily reduce the risk of contagion.

634 citations

Journal ArticleDOI
TL;DR: In this article, the authors proposed a new approach to assess systemic financial stability of a banking system using standard tools from modern risk management in combination with a network model of interbank loans.
Abstract: We propose a new approach to assess systemic financial stability of a banking system using standard tools from modern risk management in combination with a network model of interbank loans. We apply our model to a unique data set of all Austrian banks. We find that correlation in banks' asset portfolios dominates contagion as the main source of systemic risk. Contagion is rare but can nonetheless wipe out a major part of the banking system. Low bankruptcy costs and an efficient crisis resolution policy are crucial to limit the systemwide impact of contagious default events. We compute the “value at risk” for a lender of last resort and find that the funds necessary to prevent contagion are surprisingly small.

495 citations

Journal ArticleDOI
TL;DR: In this article, the authors proposed a new method for the analysis of systemic stability of a banking system relying mostly on market data, and applied their method to a dataset of the 10 major UK banks and analyzed insolvency risk over a one year horizon.
Abstract: We propose a new method for the analysis of systemic stability of a banking system relying mostly on market data. We model both asset correlations and interlinkages from interbank borrowing so that our analysis gauges two major sources of systemic risk: Correlated exposures and mutual credit relations that may cause domino effects. We apply our method to a dataset of the 10 major UK banks and analyze insolvency risk over a one year horizon. We also suggest a stress testing procedure by analyzing the conditional asset return distribution that results from the hypothetical failure of individual institutions in this system. Rather than looking at individual bank defaults ceteris paribus, we take the change in the asset return distribution and the resulting change in the risk of all other banks into account. This takes previous stress tests of interlinkages a substantial step further.

180 citations

Book
27 Sep 2012
TL;DR: A measure of plausibility is suggested that is not prone to the problem of dimensional dependence of maximum loss and a way to consistently deal with situations where some but not all risk factors are stressed is derived.
Abstract: We give a precise operational definition to three requirements the Basel Committee on Banking Supervision specifies for stress tests: plausibility and severity of stress scenarios as well as suggestiveness of risk-reducing actions. The basic idea of our approach is to define a suitable region of plausibility in terms of the risk-factor distribution and search systematically for the scenario with the worst portfolio loss over this region. One key innovation compared with the existing literature is the solution of two open problems. We suggest a measure of plausibility that is not prone to the problem of dimensional dependence of maximum loss and we derive a way to consistently deal with situations where some but not all risk factors are stressed. We show that setting the nonstressed risk factors to their conditional expected value given the value of the stressed risk factors maximizes plausibility among the various approaches used in the literature.

105 citations


Cited by
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Journal ArticleDOI
TL;DR: This work offers a comprehensive review on both structural and dynamical organization of graphs made of diverse relationships (layers) between its constituents, and cover several relevant issues, from a full redefinition of the basic structural measures, to understanding how the multilayer nature of the network affects processes and dynamics.

2,669 citations

Journal ArticleDOI
TL;DR: In this article, the authors analyze data on the sexual behavior of a random sample of individuals, and find that the cumulative distributions of the number of sexual partners during the twelve months prior to the survey decays as a power law with similar exponents for females and males.
Abstract: Many ``real-world'' networks are clearly defined while most ``social'' networks are to some extent subjective. Indeed, the accuracy of empirically-determined social networks is a question of some concern because individuals may have distinct perceptions of what constitutes a social link. One unambiguous type of connection is sexual contact. Here we analyze data on the sexual behavior of a random sample of individuals, and find that the cumulative distributions of the number of sexual partners during the twelve months prior to the survey decays as a power law with similar exponents $\alpha \approx 2.4$ for females and males. The scale-free nature of the web of human sexual contacts suggests that strategic interventions aimed at preventing the spread of sexually-transmitted diseases may be the most efficient approach.

1,476 citations

Book
01 Jan 2002
TL;DR: In the United States and the United Kingdom competitive markets dominate the financial landscape, whereas in France, Germany, and Japan banks have traditionally played the most important role as discussed by the authors. But the form of these financial systems varies widely.
Abstract: Financial systems are crucial to the allocation of resources in a modern economy. They channel household savings to the corporate sector and allocate investment funds among firms; they allow intertemporal smoothing of consumption by households and expenditures by firms; and they enable households and firms to share risks. These functions are common to the financial systems of most developed economies. Yet the form of these financial systems varies widely. In the United States and the United Kingdom competitive markets dominate the financial landscape, whereas in France, Germany, and Japan banks have traditionally played the most important role. Why do different countries have such different financial systems? Is one system better than all the others? Do different systems merely represent alternative ways of satisfying similar needs? Is the current trend toward market-based systems desirable? Franklin Allen and Douglas Gale argue that the view that market-based systems are best is simplistic. A more nuanced approach is necessary. For example, financial markets may be bad for risk sharing; competition in banking may be inefficient; financial crises can be good as well as bad; and separation of ownership and control can be optimal. Financial institutions are not simply veils, disguising the allocation mechanism without affecting it, but are crucial to overcoming market imperfections. An optimal financial system relies on both financial markets and financial intermediaries.

1,132 citations

Journal ArticleDOI
TL;DR: The authors developed an analytical model of contagion in financial networks with arbitrary structure and explored how the probability and potential impact of contagions is influenced by aggregate and idiosyncratic shocks, changes in network structure, and asset market liquidity.
Abstract: This paper develops an analytical model of contagion in financial networks with arbitrary structure. We explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure, and asset market liquidity. Our findings suggest that financial systems exhibit a robust-yet-fragile tendency: while the probability of contagion may be low, the effects can be extremely widespread when problems occur. And we suggest why the resilience of the system in withstanding fairly large shocks prior to 2007 should not have been taken as a reliable guide to its future robustness.

1,124 citations