Interbank lending and systemic risk
Systemic risk refers to the propagation of a bank's economic distress to other economic agents linked to that bank through financial transactions. Banking authorities often prevent systemic risk through an implicit insurance of interbank claims, or by reducing interbank transactions and centralizing banks' liquidity management. This paper investigates whether the flexability afforded by decentralized bank interactions can be preserved while protecting the central banks from the necessity of conducting undesired rescue operations. It develops a model in which decentralized interbank leading is motivated by peer monitoring. In this context, the paper derives the optimal prudential rules, and, in particular, looks at the impact of interbank monitoring on the solvency and liquidity ratios of borrowing and lending banks. Last, it provides conditions which a Too Big To Fail policy is or is not justified and studies the possibility of propagation of a bank's liquidity shock throughout the financial system. Copyright 1996 by Ohio State University Press.
(This abstract was borrowed from another version of this item.)
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): (1996)
Issue (Month): ()
|Contact details of provider:|| Postal: |
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:fip:fedgpr:y:1996:p:733-765. 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: (Kris Vajs)
If references are entirely missing, you can add them using this form.