French paper warns of banks precipitating crises through hoarding

banquedefrance

A new working paper published by the Banque de France aims to fill a gap in research on banking crises by modelling how banks' pre-emptive efforts to hoard liquidity may feed into contagion effects.

The paper, Domino Effects when Banks Hoard Liquidity: the French network, by Valère Fourel, Jean-Cyprien Héam, Dilyara Salakhova and Santiago Tavolaro, uses an "iterative default cascade" algorithm to study the "domino effect" of contagion. In the model, banks stockpile liquidity to protect

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