New methodology minimizes financial contagion losses in euro area banking system.
This paper presents a way to figure out how much extra money banks might need to prevent financial crises from spreading. The researchers used a special method to calculate this for the euro area banking system, which has 373 banks. They found that the amount of money needed to stop a crisis depends on how banks sell off assets in a panic and whether the government has enough money to help. This method could help policymakers decide how much money to give banks to prevent future financial disasters.
