Journal
JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volume 61, Issue 4, Pages 525-542Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jebo.2004.07.018
Keywords
systemic risk; contagion; interbank lending
Categories
Ask authors/readers for more resources
We simulate interbank lending. Each bank faces fluctuations in liquid assets and stochastic investment opportunities that mature with delay, creating the risk of liquidity shortages. An interbank market lets participants pool this risk but also creates the potential for one bank's crisis to propagate through the system. We study banking systems with homogeneous banks, as well as systems in which banks are heterogeneous. With homogeneous banks, an interbank market unambiguously stabilizes the system. With heterogeneity, knock-on effects become possible, but the stabilizing role of interbank lending remains so that the interbank market can play an ambiguous role. (c) 2006 Elsevier B.V. All rights reserved.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available