Title:
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Systemic risk, interbank relations and liquidity provision by the Central Bank
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Author:
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Freixas, Xavier; Parigi, Bruno M.; Rochet, Jean Charles
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Other authors:
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Universitat Pompeu Fabra. Departament d'Economia i Empresa |
Abstract:
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We model systemic risk in an interbank market. Banks face liquidity
needs as consumers are uncertain about where they need to
consume. Interbank credit lines allow to cope with these liquidity
shocks while reducing the cost of maintaining reserves. However,
the interbank market exposes the system to a coordination failure
(gridlock equilibrium) even if all banks are solvent. When one bank
is insolvent, the stability of the banking system is affected in
various ways depending on the patterns of payments across
locations. We investigate the ability of the banking industry to
withstand the insolvency of one bank and whether the closure of
one bank generates a chain reaction on the rest of the system. We
analyze the coordinating role of the Central Bank in preventing
payments systemic repercussions and we examine the justification of
the Too-big-to-fail-policy. |
Subject(s):
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-systemic risk -central bank -prudential regulation -interbank markets -payment systems -Finance and Accounting |
Rights:
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L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
http://creativecommons.org/licenses/by-nc-nd/3.0/es/ |
Document type:
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Working Paper |
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