Systemic risk-taking: amplification effects, externalities, and regulatory responses

Arbeitspapier

This paper analyzes the efficiency of risk-taking decisions in an economy that is prone to systemic risk, captured by financial amplification effects that occur in response to strong adverse shocks. It shows that decentralized agents who have unconstrained access to a complete set of Arrow securities choose to expose themselves to such risk to a socially inefficient extent because of pecuniary externalities that are triggered during financial amplification. The paper develops an externality pricing kernel that quantifies the state-contingent magnitude of such externalities and provides welfaretheoretic foundations for macro-prudential policy measures to correct the distortion. Furthermore, it derives conditions under which agents employ ex-ante risk markets to fully undo any expected government bailout. Finally, it finds that constrained market participants face socially insufficient incentives to raise more capital during episodes of financial amplification.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 1345

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financial Markets and the Macroeconomy ; Contingent Pricing; Futures Pricing; option pricing ; General Financial Markets: Government Policy and Regulation ; Externalities ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
• Thema: bailout neutrality ; externality pricing kernel ; financial amplification ; macroprudential regulation ; systemic externalities ; systemic risk

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Korinek, Anton
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2011

Weitere Informationen

• Handle: http://hdl.handle.net/10419/153779
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ