Securitized Products, Financial Regulation, and Systemic Risk
AbstractIt is widely believed that the practice of securitization is one of the causes that led to the 2007–08 financial crisis. In this paper, I show that securitized products such as collateralized debt obligations (CDO) are particularly vulnerable to systematic risk and tend to show higher tail risk. These characteristics, in turn, are closely associated with joint failures and systemic risk. In order to achieve greater stability of the financial system, it is important to prevent the recurrence of the collapse of specific markets as this may lead to the collapse of other components of the financial system. From this perspective, the financial regulations that should be applied to these problematic financial products and their relation to possible systemic risks are discussed.
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Bibliographic InfoPaper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 203.
Length: 26 pages
Date of creation: 05 Mar 2010
Date of revision:
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global financial crisis; systemic risk; cdos; financial regulation;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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- Morgan, Peter J. & Lamberte , Mario, 2012.
"Strengthening Financial Infrastructure,"
ADBI Working Papers
345, Asian Development Bank Institute.
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