What Is Systemic Risk? Moral Hazard, Initial Shocks, and Propagation
AbstractThis paper discusses different aspects of the notion of systemic risk. It contains a selective survey of the research on related topics, a review of some case studies of financial crises and failures, and a discussion pointing toward the importance of moral hazard as a key element of systemic risk. The main ideas studied are the links between capital structure theory and bank capital regulation, and moral hazard and agency theory at the level of the individual trader, the financial firm, and the overall financial system. Another important idea is the co- determination of asset prices and bank solvency. My main focus is on moral hazard as a potentially fruitful area for future research. Although existing research emphasizes the powerful propagation mechanisms whereby a small initial shock can be amplified by the financial system, I suggest that moral hazard, together with leverage at the level of the individual firm, can cause a large shock to the financial system.
Download InfoIf 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.
Bibliographic InfoArticle provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.
Volume (Year): 18 (2000)
Issue (Month): 2 (December)
Contact details of provider:
Postal: 2-1-1 Nihonbashi, Hongoku-cho, Chuo-ku, Tokyo 103
Web page: http://www.imes.boj.or.jp/
More information through EDIRC
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Lehar, Alfred, 2005. "Measuring systemic risk: A risk management approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2577-2603, October.
- Bholat, David & Gray, Joanna, 2013. "Organizational form as a source of systemic risk," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(27), pages 1-35.
- De Nicolo, Gianni & Kwast, Myron L., 2002. "Systemic risk and financial consolidation: Are they related?," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 861-880, May.
- Summer, Martin, 2002.
"Banking Regulation and Systemic Risk,"
57, Oesterreichische Nationalbank (Austrian Central Bank).
- Terri Bradford & Matt Davies & Stuart E. Weiner, 2002. "Nonbanks in the payments system," Payments System Research Working Paper PSR WP 02-02, Federal Reserve Bank of Kansas City.
- Kole, Erik & Koedijk, Kees & Verbeek, Marno, 2006. "Portfolio implications of systemic crises," Journal of Banking & Finance, Elsevier, vol. 30(8), pages 2347-2369, August.
- Gianni De NicolÃ³ & Myron L. Kwast, 2002. "Systemic Risk and Financial Consolidation: Are they Related?," IMF Working Papers 02/55, International Monetary Fund.
- Instefjord, Norvald, 2005. "Risk and hedging: Do credit derivatives increase bank risk?," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 333-345, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kinken).
If references are entirely missing, you can add them using this form.