Risk-sharing and the creation of systemic risk

Artikel

We address the paradox that financial innovations aimed at risk-sharing appear to have made the world riskier. Financial innovations facilitate hedging idiosyncratic risks among agents; however, aggregate risks can be hedged only with liquid assets. When risk-sharing is primitive, agents self-hedge and hold more liquid assets; this buffers aggregate risks, resulting in few correlated failures compared to when there is greater risk sharing. We apply this insight to build a model of a clearinghouse to show that as risk-sharing improves, aggregate liquidity falls but correlated failures rise. Public liquidity injections, for example, in the form of a lender-of-last-resort can reduce this systemic risk ex post, but induce lower ex-ante levels of private liquidity, which can in turn aggravate welfare costs from such injections.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 13 ; Year: 2020 ; Issue: 8 ; Pages: 1-18 ; Basel: MDPI

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Insurance; Insurance Companies; Actuarial Studies ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
• Thema: banking ; clearinghouses ; systemic risk ; Finanzprodukt ; Risikomanagement ; Systemrisiko ; Bank ; Clearing ; Lender of Last Resort

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Acharya, Viral V. ; Iyer, Aaditya M. ; Sundaram, Rangarajan K.
• Ereignis: Veröffentlichung
• (wer): MDPI
• (wo): Basel
• (wann): 2020

Weitere Informationen

• DOI: doi:10.3390/jrfm13080183
• Handle: http://hdl.handle.net/10419/239248
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ