Interbank network and bank bailouts: Insurance mechanism for non-insured creditors?

Arbeitspapier

This paper presents a new theory that explains why it is beneficial for banks to be highly interconnected and to engage in herding behavior. It shows that these two important causes of systemic risk are interdependent and thus cannot be considered in isolation. The reason is that banks have an incentive to exploit their implicit government guarantees by artificially channeling funds through the interbank market, which leads to high interconnectedness. Moreover, given that banks are highly interconnected, they are incentivized to invest in correlated portfolios to minimize contagion risks and thereby maximize the government subsidy per invested unit of capital.

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• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: SAFE Working Paper ; No. 10

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Thema: bailout ; systemic risk ; interconnectedness ; herding ; interbank network

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Eisert, Tim ; Eufinger, Christian
• Ereignis: Veröffentlichung
• (wer): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (wo): Frankfurt a. M.
• (wann): 2014

Weitere Informationen

• DOI: doi:10.2139/ssrn.2231984
• Handle: http://hdl.handle.net/10419/203266