The FMG is delighted to announce that Professor Kathy Yuan (FMG/Department of Finance) has been awarded a European Research Council (ERC) Consolidator Grant in relation to systemic risk. The ERC is providing close to €700k for the project over 3 years until May 2017. The aim of the project is to identify new ways to consider and measure systemic financial risks and, more importantly, the linkages between the financial risks and the real economy, and the welfare consequences.
Professor Yuan will apply endogenous risk analysis to identify channels for the creation of systemic risk via various feedback loops. The focus will be on the effect of network externality on systemic risk formation. She plans to model and estimate network externality using uniquely available datasets on interbank payment flows in the UK; on 176 UK banks’ counterparty exposure with detailed breakdown of market instruments, and on the BIS bilateral bank capital flows respectively. This analysis is important to understand the role of network in dampening or amplifying shocks and to provide quantitative measurement of network-originated systemic (liquidity/default) risks.