Advanced Search
MyIDEAS: Login

Financial firm bankruptcy and systemic risk

Contents:

Author Info

  • Helwege, Jean
Registered author(s):

    Abstract

    Financial firm distress often leads to regulatory intervention, such as "too big to fail" (TBTF) policies. Two oft-cited channels to justify TBTF are domino effects (counterparty risk) and the effects of fire sales. We analyze the policy responses for avoiding systemic risk while considering the role of these two factors. Prior bankruptcies suggest that cascades caused by counterparty risk do not occur, as firms diversify their exposures. Instead, crises tend to be symptomatic of common factors in financial firms' portfolios, which lead to widespread instances of declining asset values and which are often misinterpreted as resulting from fire sales.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/B6VGT-4XPB6Y9-1/2/605830ca3abc4e14311c858e52770914
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

    Volume (Year): 20 (2010)
    Issue (Month): 1 (February)
    Pages: 1-12

    as in new window
    Handle: RePEc:eee:intfin:v:20:y:2010:i:1:p:1-12

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/intfin

    Related research

    Keywords: Financial institutions Systemic risk Too big to fail Fire sales Counterparty risk;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Malkiel, Burton & Campbell, John & Lettau, Martin & Xu, Yexiao, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Scholarly Articles 3128707, Harvard University Department of Economics.
    2. Bordo, Michael D. & Haubrich, Joseph G., 2010. "Credit crises, money and contractions: An historical view," Journal of Monetary Economics, Elsevier, vol. 57(1), pages 1-18, January.
    3. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-62, November.
    4. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    5. Gilson, Stuart C., 1989. "Management turnover and financial distress," Journal of Financial Economics, Elsevier, vol. 25(2), pages 241-262, December.
    6. Joe Peek & Eric S. Rosengren, 1996. "Derivatives Activity at Troubled Banks," Center for Financial Institutions Working Papers 96-52, Wharton School Center for Financial Institutions, University of Pennsylvania.
    7. Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-64, May.
    8. Fenn, George W. & Cole, Rebel A., 1994. "Announcements of asset-quality problems and contagion effects in the life insurance industry," Journal of Financial Economics, Elsevier, vol. 35(2), pages 181-198, April.
    9. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
    10. repec:wop:humbsf:2002-30 is not listed on IDEAS
    11. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
    12. DeAngelo, Harry & DeAngelo, Linda & Gilson, Stuart C., 1994. "The collapse of First Executive Corporation junk bonds, adverse publicity, and the 'run on the bank' phenomenon," Journal of Financial Economics, Elsevier, vol. 36(3), pages 287-336, December.
    13. Wruck, Karen Hopper, 1990. "Financial distress, reorganization, and organizational efficiency," Journal of Financial Economics, Elsevier, vol. 27(2), pages 419-444, October.
    14. Kabir, M. Humayun & Hassan, M. Kabir, 2005. "The near-collapse of LTCM, US financial stock returns, and the fed," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 441-460, February.
    15. Robert A. Jarrow, 2001. "Counterparty Risk and the Pricing of Defaultable Securities," Journal of Finance, American Finance Association, vol. 56(5), pages 1765-1799, October.
    16. Geske, Robert, 1977. "The Valuation of Corporate Liabilities as Compound Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 541-552, November.
    17. Weiss, Lawrence A., 1990. "Bankruptcy resolution: Direct costs and violation of priority of claims," Journal of Financial Economics, Elsevier, vol. 27(2), pages 285-314, October.
    18. Philippe Jorion & Gaiyan Zhang, 2009. "Credit Contagion from Counterparty Risk," Journal of Finance, American Finance Association, vol. 64(5), pages 2053-2087, October.
    19. Jorion, Philippe & Zhang, Gaiyan, 2007. "Good and bad credit contagion: Evidence from credit default swaps," Journal of Financial Economics, Elsevier, vol. 84(3), pages 860-883, June.
    20. Barry Eichengreen & Ashoka Mody, 2000. "What Explains Changing Spreads on Emerging Market Debt?," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 107-134 National Bureau of Economic Research, Inc.
    21. Furfine, Craig H, 2003. " Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 111-28, February.
    22. Yu, Fan, 2005. "Accounting transparency and the term structure of credit spreads," Journal of Financial Economics, Elsevier, vol. 75(1), pages 53-84, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Ureche-Rangau, Loredana & Burietz, Aurore, 2013. "One crisis, two crises…the subprime crisis and the European sovereign debt problems," Economic Modelling, Elsevier, vol. 35(C), pages 35-44.
    2. KAPITSINIS, Nikolaos & METAXAS, Theodore & DUQUENNE, Marie Noelle, 2013. "Exploring The Coherence And The Meaning Of Territorial Competition: Do National States Behave In The Same Way As Firms In Case Of Default?. The Cases Of Greece And Dubai," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(2), pages 57-72.
    3. Mark Mink & Jakob de Haan, 2014. "Spillovers from Systemic Bank Defaults," CESifo Working Paper Series 4792, CESifo Group Munich.
    4. Suh, Sangwon, 2012. "Measuring systemic risk: A factor-augmented correlated default approach," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 341-358.
    5. Dumontaux, Nicolas & Pop, Adrian, 2013. "Understanding the market reaction to shockwaves: Evidence from the failure of Lehman Brothers," Journal of Financial Stability, Elsevier, vol. 9(3), pages 269-286.
    6. Trapp, Monika & Wewel, Claudio, 2013. "Transatlantic systemic risk," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4241-4255.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:20:y:2010:i:1:p:1-12. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.