1. Interbank Exposures An Empirical Examination of Systemic Risk in the Belgian Banking System Hans Degryse KU Leuven, CentER - Tilburg University & CES-Ifo Gregory Nguyen National Bank of Belgium Discussion by Steven Ongena CentER - Tilburg University & CEPR

2. 2 “Inter-Author Exposures” LenaTorKasperPeterPer

3. 3 “Inter-Author Exposures” LenaTorKasperPeterPer

4. 4 “Inter-Author Exposures” LenaTorKasperPeterPer Greg

5. 5 “Inter-Author Exposures” LenaTorKasperPeterPer Greg

6. 6 “Inter-Author Exposures” LenaTorKasperPeterPer Greg

7. 7 “Inter-Author Exposures” LenaTorKasperPeterPer Greg Elena Philipp

8. 8 “Inter-Author Exposures” LenaTorKasperPeterPer Greg Elena Philipp

9. 9 “Inter-Author Exposures” LenaTorKasperPeterPer Greg Elena Philipp

10. 10 Banks in Belgium

11. 11 Gross Exposures

12. 12 First Domino Bank Default “Stress Testing”

13. 13 Second Round Effect Another bank losing tier-I capital

14. 14 Another First Round Domino Effect

15. 15 Another First Round Domino Effect

16. 16 Another First Round Domino Effect

17. 17 Indicators of Contagion  Worst-case scenario  % total banking assets lost is greatest  Number of cases of contagion  Number of rounds in worst-case scenario

18. 18 Loss Given Default 100% 80% 60% 40% 20%

19. 19 Results 2002 Almost no contagion 1990-1995 More contagion

20. 20 Results 2002 Almost no contagion comparable to other countries 1990-1995 More contagion contribution of the paper

21. 21 Why this decrease in contagion?

22. 22 1992-1995

23. 23 2002 Money-center interbank structure

24. 24 Internationalization 2002

25. 25 Findings possibly difficult to interpret? Data Issues.

26. 26 N: Domestic, M: Foreign Banks x 11 …x 1N x 1N+1 …x 1N+M Assets ………… x N1 …x NN x NN+1 …x NN+M Assets x N+11 …x N+1N x N+1N+1 …x N+1N+M Assets ………… x N+11 …x N+1N x N+1N+1 …x N+1N+M Assets Liabilities

27. 27 B2B, B2F, F2B, F2F x 11 …x 1N x 1N+1 …x 1N+M … B2B …… B2F … x N1 …x NN x NN+1 …x NN+M x N+11 …x N+1N x N+1N+1 …x N+1N+M … F2B …… F2F … x N+11 …x N+1N x N+1N+1 …x N+1N+M

28. 28 Missing Data: No F2B and F2F x 11 …x 1N x 1N+1 …x 1N+M ………… x N1 …x NN x NN+1 …x NN+M

29. 29 Only Exposures >10% Own Funds 0…>10% … ………… …0 …

30. 30 Exact Sum Domestic Exposures 0…x 1N SUM j ( x 1j) ……… x N1 …0 SUM j ( x Nj) SUM i ( x i1) … SUM i ( x iN)

31. 31 Combining Information  Large exposure technique  Aggregate exposure technique  Mixed technique Clever and exhaustive useage of the available information! But possibly not enough to deliver the current interpretation?

32. 32 1992-1995

33. 33 1992-1995

34. 34 1992-1995

35. 35 2002

36. 36 2002

37. 37 2002

38. 38 2002

39. 39 Censoring Problem  Dependent Contagion Variable(s) are all censored  Instrumenting the independent variables may not solve the problem

40. 40 Censoring Problem May Be Severe  Think about 2 nd, 3 rd, … rounds!  Censoring Problem possibly increased over time  Driving your findings?

41. 41 How Relevant Is This Problem?  Hard to know how many observations are censored!  Are all countries equally affected?  Level: small and open systems, like Belgium, more affected than large and more closed systems, like Germany  Change: Belgium, always open, degree of censoring less affected over time We can only speculate what this does to the findings

42. 42 Possibly No Real Good Solutions?  Hard to know for sure which observations are censored!  Needed to construct estimation adjustment  Many assumptions about foreign banks would be needed to “lift” censoring  Notice that testing reaction to foreign bank failures does not give you a handle on this issue  Adjust interpretations?

43. 43 Complete and Careful Paper  Robustness is good, but focus...  Detailed comments on hardcopy.  Enjoyed reading the paper!