Journal article
Market discipline and systemic risk
- Abstract:
- We analyze a general equilibrium model in which financial institutions generate endogenous systemic risk. Banks optimally select correlated investments and thereby expose themselves to fire-sale risk so as to sharpen their incentives. Systemic risk is therefore a natural consequence of banks’ fundamental role as delegated monitors. Our model sheds light on recent and historical trends in measured systemic risk. Technological innovations and government-directed lending can cause surges in systemic risk. Strict capital requirements and well-designed government-asset purchase programs can combat systemic risk.
- Publication status:
- Published
- Peer review status:
- Peer reviewed
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Access Document
- Files:
-
-
(Preview, Accepted manuscript, pdf, 506.0KB, Terms of use)
-
- Publisher copy:
- 10.1287/mnsc.2018.3248
Authors
- Publisher:
- INFORMS
- Journal:
- Management Science More from this journal
- Volume:
- 66
- Issue:
- 2
- Pages:
- 764-782
- Publication date:
- 2019-10-24
- Acceptance date:
- 2018-10-30
- DOI:
- EISSN:
-
1526-5501
- ISSN:
-
0025-1909
- Language:
-
English
- Keywords:
- Pubs id:
-
pubs:937125
- UUID:
-
uuid:5a04f7f2-e7c3-420f-a660-a4dd0b48b74e
- Local pid:
-
pubs:937125
- Source identifiers:
-
937125
- Deposit date:
-
2018-11-05
- ARK identifier:
Terms of use
- Copyright holder:
- INFORMS
- Copyright date:
- 2019
- Rights statement:
- Copyright © 2019, INFORMS.
- Notes:
- This is the accepted manuscript version of the article. The final version is available online from INFORMS at: https://doi.org/10.1287/mnsc.2018.3248
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