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Systemic Risk and Interbank Lending
We propose a simple model of the banking system incorporating a game feature, where the evolution of monetary reserve is modeled as a system of coupled Feller diffusions. The optimization reflects the desire of each bank to borrow from or lend to a ...
Interbank Networks and Backdoor Bailouts: Benefiting from Other Banks’ Government Guarantees
This paper explains why banks derive a benefit from being highly interconnected. We show that when banks are protected by government guarantees, they can significantly increase their expected returns by channeling funds through the interbank market before ...
Systemic Risk in the Interbank Market with Overlapping Portfolios
The increasing frequency and scope of the financial crisis have attracted more attention in the research of the systemic risk of banking system. A new model for the interbank market with overlapping portfolios is proposed to simulate a banking system in ...
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