Common asset holdings important for stress testing – BoE paper

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Common asset holdings across banks and non-banks can amplify losses during a fire sale, new research published by the Bank of England finds.

Fabio Caccioli, Gerardo Ferrara and Amanah Ramadiah note greater attention is now being paid to links between banks and non-banks, given the rapid growth of asset managers in recent years. But the literature on “indirect contagion” has tended to focus on single sectors.

They build a model of indirect contagion, where banks and non unit-linked insurers are

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