Since July 2012 I am a Research Economist at the Research Center of Deutsche Bundesbank and a Collaborating Research Scholar within the networks cluster of Keble College at Oxford University. Please note that this is my private website and the views presented here do not necessarily reflect the views of Bundesbank or the ESCB.
From June 2013 I will be a Lecturer at the University of Cape Town Graduate School of Business.
I finished my PhD on "Systemic Risk in Interbank Markets" at the Friedrich-Schiller-Universität Jena within the Graduate School Foundations of Global Financial Markets - Stability and Change in September 2011 and worked as a postdoctoral researcher at the Interdisciplinary Group of Complex Systems Research at the University Carlos III Madrid until June 2012.
"The Effect of Interbank Network Structure on Contagion and Common Shocks", Deutsche Bundesbank Discussion Paper Series 2, 12/2011, (2011). Journal of Banking and Finance (forthcoming). [abstract] [Latest Version (2013-02-10)]
This paper proposes a dynamic multi-agent model of a banking system with central bank. Banks optimize a portfolio of risky investments and riskless excess reserves according to their risk, return, and liquidity preferences. They are linked via interbank loans and face stochastic deposit supply. Evidence is provided that the central bank stabilizes interbank markets in the short-run only. Comparing different interbank network structures, it is shown that money-center networks are more stable than random networks. Systemic risk via contagion is compared to common shocks and it is shown that both forms of systemic risk require diﬀerent optimal policy responses.
Work in progress:
"Information Contagion and Systemic Risk" (with Toni Ahnert, Financial Markets Group, London School of Economics and Political Science). [abstract] [paper]
Information contagion can reduce systemic risk defined as the joint default probability of banks. This paper examines the effects of ex-post information contagion on both the banks' ex-ante optimal portfolio choices and the implied welfare losses due to joint default. Because of counterparty risk and common exposures, bad news about one bank reveals valuable information about another bank, thereby triggering information contagion. We find that information contagion reduces (increases) the joint default probability when banks are subject to counterparty risk (common exposures). When applied to microfinance, our model also provides a novel explanation for higher repayment rates in group lending.
"Financial Linkages, Transparency, and Systemic Risk" (with Toni Ahnert, Financial Markets Group, London School of Economics and Political Science). [abstract]
This paper develops a model of opaque financial intermediaries that strategically liquidate their assets in a joint liquidation market. Strategic substitutability in the liquidation decision of large intermediaries reduces systemic risk, defined as the ex-ante probability of their joint default. Opacity weakens this strategic substitutability and we demonstrate that even an anticipated rise in asset opacity increases systemic risk. Regulatory consequences for the transparency and market size of over-the-counter, repo and tri-party repo markets are discussed.
"Contagious Herding and Endogenous Network Formation in Financial Networks". [abstract] [I presented the paper at the 2013 INET Conference in Hong Kong. Watch a video (starts at ~20min)]
When banks choose similar investment strategies the financial system becomes vulnerable to common shocks. Banks decide about their investment strategy based on a private belief about the state of the world and a social belief formed from observing the actions of peers. When the social belief is strong and the financial network is fragmented banks follow their peers and their investment strategies synchronize. This effect is stronger for less informative private signals. For endogenously formed interbank networks, however, less informative signals lead to higher network density and less synchronization. It is shown that the former effect dominates the latter.
Interdisciplinary, Policy, and Other Publications
"Complex Derivatives" (with Stefano Battiston, ETH Zurich, Guido Caldarelli, IMT Lucca, Robert M. May, Oxford University, and Joseph E. Stiglitz, Columbia University), Nature Physics Vol.9, No.3, (2013). [abstract] [Focus]
The intrinsic complexity of the financial derivatives market has emerged as both an incentive to engage in it, and a key source of its inherent instability. Regulators now faced with the challenge of taming this beast may find inspiration within the budding science of complex systems..
- "Systemic RIsk in the Financial Sector" (with Ian Goldin, Mike Mariathasan, Oxford, and Tiffany Vogel), in: Ian Goldin and Mike Mariathasan: "The Butterfly Defect - Globalisation and Systemic Risk", Princeton University Press, (2013)
"Note on interlinkages in the South African interbank system" (with Nicola Brink), Special Note in the Financial Stability Review, South African Reserve Bank (March 2011). [abstract] [fsr]
This paper analyses the network structure of the South African overnight interbank market by employing measures from network theory. A unique data set of interbank transactions from the South African Multiple Options Settlement (SAMOS) system is used. It is shown that the South African interbank system has been largely stable and resilient over the period from March 2005 to June 2010, even in times of great distress on the international financial markets. The number of banks participating in the interbank market was approximately constant over the analysed period, as well as the high level of interconnectedness. A low average path length and high clustering coefficient indicate a high level of liquidity allocation and risk sharing in the system. Furthermore a Network Systemic Importance Index (NSII) is developed to assess the systemic importance of individual banks in South Africa. This index measures each banks size, interconnectedness and substitutability by employing network theory. It is a relative index in the sense that the systemic importance of any given bank does not only depend on the properties of the bank itself, but rather on the properties of the whole network. This approach is therefore less prone to moral hazard and can be used as a tool for macroprudential oversight in addition to microprudential supervision. The NSII addresses the cross-sectional dimension of systemic risk. It has to be stressed, however, that it gives no indication of the default probability of individual banks and has therefore be accompanied by other macroprudential tools for a full picture of systemic risk.
"Basel III and Systemic Risk Regulation - What Way Forward?", Global Financial Markets Working Paper Series 17-2011, (2011). [abstract] [paper]
One of the most pressing questions in the aftermath of the financial crisis is how to deal with systemically important financial institutions (SIFIs). The purpose of this paper is to review the recent literature on systemic risk and evaluate the regulation proposals in the Basel III framework with respect to this literature. A number of shortcomings in the current framework are analyzed and three measures for future reform are proposed: counter-cyclical risk-weights, dynamic asset value correlation multipliers, and enhanced transparency requirements for SIFIs.
I am developing black_rhino, an open source financial network multi-agent simulation. You can find the most recent version (including a short tutorial) at sourceforge.
- Summer 2011
Banking and Modern Financial Economics (University of Pretoria), 13.+14. September 2011. The course outline can be found here. The literature for the course can be found here. Some introductory material for statistics can be found in the book by Grinstead and Snell.
- Winter 2008/2009
Business Cycle Theory and Policy (seminar with Prof. H.W. Lorenz), Jan. 2009, Carl-Zeiss-Strasse 3, SR 4.157
- Summer 2008
Macroeconomics (teaching assistant)
Contact:E-mail: firstname.lastname@example.org | email@example.com | firstname.lastname@example.org
Telephone:+49 69 9566 7038 | Skype: co.georg
Postal Address:Deutsche Bundesbank - Research Center, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany