Amplification and feedback effects that compound losses in a complex network of financial institutions are at the centre of attention to understand systemic risk in the financial system. This paper focuses on the asset fire-sale contagion channel and calibrates a fire-sale model to the South African banking system. Fire-sale externalities arising from defaults of unsecured loans to the largest retail bank have minimal effect on financial system stability. However, price shocks to SA government bonds wipe out approx. 16% of total banking system equity in de-leveraging knock-on effects. I rank individual banks according to their contribution to systemic risk and show the importance of cash liquidity buffers in reducing risk to fire-sale occurrences. Last, but not least, the paper finds a critical threshold price impact parameter, which, if exceeded, makes the banking system highly unstable.
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