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Securitized Products, Financial Regulation, and Systemic Risk

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  • Fujii, Mariko

    (Asian Development Bank Institute)

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    Abstract

    It 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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    File URL: http://www.adbi.org/working-paper/2010/03/05/3632.financial.regulation.systemic.risk/
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    Bibliographic Info

    Paper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 203.

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    Length: 26 pages
    Date of creation: 05 Mar 2010
    Date of revision:
    Handle: RePEc:ris:adbiwp:0203

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    Keywords: global financial crisis; systemic risk; cdos; financial regulation;

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    Cited by:
    1. Peter J. Morgan & Mario Lamberte, 2012. "Strengthening Financial Infrastructure," Finance Working Papers 23191, East Asian Bureau of Economic Research.

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