Understanding Systemic Risk in the Banking Sector: A MacroFinancial Risk Assessment Framework

The recent fi nancial crisis highlighted the need for a better assessment of systemic risk—risk at the level of the entire fi nancial system. Thus, models of the fi nancial system and the complex interactions of the institutions within it have become a major priority for central banks. The development of the MacroFinancial Risk Assessment Framework (MFRAF) is an important step because it provides a framework in which the interconnections between liquidity and solvency in a fi nancial system are modelled, and in which multiple institutions are linked through an interbank network.