Towards a Framework for Quantifying Systemic Stability

Abstract

This paper describes a prototype quantitative framework for gauging systemic risk which explicitly characterizes banks' balance sheets and allows for macro credit risk, interest income risk, market risk, network interactions, and asset-side feedback effects.In presenting our results, we focus on projections for systemwide banking assets in the United Kingdom, considering both unconditional distributions and stress scenarios.We show how a combination of extreme credit and trading losses can * We would like to thank Emma Mattingley and Ruth Yu for excellent research assistance.

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