Banking Concentration: Implications for Systemic Risk and Safety Net Design
This paper explores the impact of banking concentration on safety net design –in particular, deposit insurance– and on systemic risk. The paper focuses on a system characterized by high concentration and low total number of banks. Each issue is addressed separately. The first section discusses best practices in deposit insurance design and derives conclusions for the case we are interested in. One is that in this context deposit insurance cannot be thought of as a stand-alone instrument, but rather must be understood as an element of the intervention and resolution policy. The second part of the paper studies systemic risk in such a system, using the Eisenberg and Noe (2001) approach to model and study risk in a network of banks. A working metric of the “too big to fail” situation can be derived in the model. More importantly, this section shows how the risk of idiosyncratic shocks spreading through the system are substantially higher in concentrated systems than in decentralized ones. Finally, the paper proposes and evaluates a specific regulatory measure that successfully contains systemic risk.
|Date of creation:||Oct 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, vol. 46(4), pages 1223-42, September.
- Jean-Charles Rochet & Jean Tirole, 1996.
"Interbank lending and systemic risk,"
Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
- Gorton, Gary, 1988.
"Banking Panics and Business Cycles,"
Oxford Economic Papers,
Oxford University Press, vol. 40(4), pages 751-81, December.
- Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:231. 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: (Claudio Sepulveda)
If references are entirely missing, you can add them using this form.