Financial networks: Contagion, commitment, and private sector bailouts

• 成果类型: Article
• 署名作者: Leitner, Y
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Philadelphia
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/j.1540-6261.2005.00821.x
• 发表日期: 2005
• 页码: 2925-2953
• 关键词: repayment incentives; Joint liability; MODEL; RISK; EFFICIENCY; insurance; debt

摘要

I develop a model of financial networks in which linkages not only spread contagion, but also induce private sector bailouts, where liquid banks bail out illiquid banks because of the threat of contagion. Introducing this bailout possibility, I show that linkages may be optimal ex ante because they allow banks to obtain some mutual insurance even though formal commitments are impossible. However, in some cases (e.g., when liquidity is concentrated among a small group of banks), the whole network may collapse. I also characterize the optimal network size and apply the results to joint liability arrangements and payment systems.