Efficiency and stability of a financial architecture with too-interconnected-to-fail institutions

• 成果类型: Article
• 署名作者: Gofman, Michael
• 署名单位: University of Wisconsin System; University of Wisconsin Madison
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2016.12.009
• 发表日期: 2017
• 页码: 113-146
• 关键词: Financial Regulation; networks; Trading efficiency; Contagion risk; Federal funds market

摘要

The regulation of large interconnected financial institutions has become a key policy issue. To improve financial stability, regulators have proposed limiting banks' size and interconnectedness. I estimate a network-based model of the over-the-counter interbank lending market in the US and quantify the efficiency-stability implications of this policy. Trading efficiency decreases with limits on interconnectedness because the intermediation chains become longer. While restricting the interconnectedness of banks improves stability, the effect is non-monotonic. Stability also improves with higher liquidity requirements, when banks have access to liquidity during the crisis, and when failed banks' depositors maintain confidence in the banking system. (C) 2016 Elsevier B.V. All rights reserved.