Size and complexity in model financial systems.

ABSTRACT: The global financial crisis has precipitated an increasing appreciation of the need for a systemic perspective toward financial stability. For example: What role do large banks play in systemic risk? How should capital adequacy standards recognize this role? How is stability shaped by concentration and diversification in the financial system? We explore these questions using a deliberately simplified, dynamic model of a banking system that combines three different channels for direct transmission of contagion from one bank to another: liquidity hoarding, asset price contagion, and the propagation of defaults via counterparty credit risk. Importantly, we also introduce a mechanism for capturing how swings in "confidence" in the system may contribute to instability. Our results highlight tha

SUBMITTER: Arinaminpathy N 

PROVIDER: S-EPMC3494937 | biostudies-literature | 2012 Nov

REPOSITORIES: biostudies-literature