Liability Concentration and Systemic Losses in Financial Networks

      Department of Systems Engineering and Engineering Management
                             The Chinese University of Hong Kong
Date: 4:30pm to 5:30pm, April 11, 2017 (Tuesday)
Title: Liability Concentration and Systemic Losses in Financial Networks
Speaker: Prof. CHEN, Peng-Chu, Department of Industrial and Manufacturing Systems Engineering, University of Hong Kong
The objective of this study is to develop a majorization-based tool to compare financial networks with a focus on the implications of liability concentration. Specifically, we quantify liability concentration by applying the majorization order to the liability matrix that captures the interconnectedness of banks in a financial network. we develop notions of lowly and highly capitalized networks to bring out the qualitatively different implications of liability concentration on the system’s loss profile. We illustrate how to identify networks that are lowly or highly capitalized, and make connections to interbank structures identified by empirical research, such as perfect and imperfect tiering schemes. An empirical analysis of the network formed by the banking sectors of eight representative European countries suggests that the system is either highly capitalized or close to it, persistently over time. This empirical finding, along with the majorization results, supports regulatory policies aiming at limiting the size of gross exposures to individual counterparties.
Peng-Chu Chen is currently Assistant Professor in the Department of Industrial and Manufacturing Systems Engineering at the University of Hong Kong. His research interests are in performance analysis of complex network infrastructures. His primary objective is to develop a new class of performance metrics and novel tools for simultaneous comparison of networks along multiple measures of performance. The main applications of his research are in systemic risk and contagion in financial networks. His research contributes to the understanding of the financial contagion mechanisms and the impact of network topology on systemic losses, and to assess the impact of prescriptive policies for systemic risk. His research has been published in top tier journals including Operations Research and Journal of Economic Dynamics and Control. Peng-Chu received his Ph.D. degree in Industrial Engineering from Purdue University in 2016 and his Master’s degree in Transportation Engineering from University of California, Berkeley in 2003. He has been working in industry as a senior flight network engineer with the FedEx Express.
This seminar is hosted by Prof He Xuedong.
Everyone is welcome to attend the talk!
Venue: Room 513,
      William M.W. Mong Engineering Building (ERB),
      The Chinese University of Hong Kong.
SEEM-5202 Website:
Tuesday, April 11, 2017 - 08:30 to 09:30