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Financial Fragility and Interbank Structure

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  • Yalan Feng

Abstract

This paper follows Allen and Gale (2000) to model financial contagion as an equilibrium phenomenon. I assume a two-country economy where banks in each country hold interregional claims on other banks to provide insurance against liquidity preference shocks. The results completely replicate Allen-Gale model. To further test the relative robustness of different market structures I test the implication of moral hazard as in Brusco and Castiglionesi (2007). I find that under certain situation, complete and incomplete structures are equally fragile.

Suggested Citation

  • Yalan Feng, 2018. "Financial Fragility and Interbank Structure," Accounting and Finance Research, Sciedu Press, vol. 7(3), pages 138-138, August.
    • Handle: RePEc:jfr:afr111:v:7:y:2018:i:3:p:138
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    References listed on IDEAS

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    1. Sandro Brusco & Fabio Castiglionesi, 2007. "Liquidity Coinsurance, Moral Hazard, and Financial Contagion," Journal of Finance, American Finance Association, vol. 62(5), pages 2275-2302, October.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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