Systemic pricing and the real value of banks' liabilities: practical advice for financial managers

What is it about?

The paper critiques traditional bank liability pricing methods that ignore the risks of financial contagion and systemic crises. It advocates for network-based valuation methods that incorporate these risks in assessing the value of a bank's debt. The paper highlights the benefits of adopting network-based valuation methods in financial firms and suggests practical steps for adopting such novel techniques within an organisation. Moreover, it calls for the wider diffusion of network-based models to better reflect true credit risks and manage the broader economic impacts of financial crises, aiming for a more stable financial system.

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