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Diversification at Financial Institutions and Systemic Crises

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  • Wagner, W.B.

    (Tilburg University, Center for Economic Research)

Abstract

We show that the diversification of risks at financial institutions has unwelcome effects by increasing the likelihood of systems crises.As a result, complete diversification is not warranted adn the optimal degree of diversification is arbitrarily low.We also identify externalities that cause financial institutions to diversify beyond diversification may thus have reduced welfare.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2006-71.

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Date of creation: 2006
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Handle: RePEc:dgr:kubcen:200671

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Web page: http://center.uvt.nl

Related research

Keywords: diversification; financial consolidation; conglomeration; securitization; system risk;

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  1. Podobne do siebie banki razem wpadają w tarapaty
    by k.mokrzycka in Obserwator Finansowy on 2012-04-25 03:59:10
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