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Systemic RiskThe Dynamics of Modern Financial Systems$
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Prasanna Gai

Print publication date: 2013

Print ISBN-13: 9780199544493

Published to Oxford Scholarship Online: May 2013

DOI: 10.1093/acprof:oso/9780199544493.001.0001

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Quantifying Systemic Risk

Quantifying Systemic Risk

Chapter:
(p.78) (p.79) 6 Quantifying Systemic Risk
Source:
Systemic Risk
Author(s):

Prasanna Gai

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199544493.003.0006

This chapter describes work at the Bank of England to develop a quantitative framework to guide macroprudential analysis and bank stress-testing work. The Risk Assessment Model for Systemic Institutions (RAMSI) explicitly characterizes bank balance sheets and allows for feedback effects associated with asset fire sales and network interactions. The model is calibrated to UK financial system data and the results present prototypical projections for system-wide banking assets. Despite the joint normality of the risk factors of the model, RAMSI generates a bimodal asset distribution, reflecting the possibility of second and higher round defaults associated with feedback effects of the kind described in earlier chapters. RAMSI is potentially a policy tool for risk assessment and macroprudential stress-testing exercises.

Keywords:   bank stress tests, RAMSI, macroprudential policy, network models, systemic risk measurement

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