Endogenous Risk Exposure and Systemic Instability

• 成果类型: Article
• 署名作者: Shu, Chong
• 署名单位: Utah System of Higher Education; University of Utah
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.01519
• 发表日期: 2025
• 页码: 5511-5528
• 关键词: systemic risks; Financial networks

摘要

Most research on systemic stability assumes an economy where banks are subject to exogenous shocks. However, in practice, banks choose their exposure to risk. I show that there exists a network risk-taking externality: the risk exposure choices made by connected banks are strategically complementary. Banks within financial networks, especially densely connected ones, become endogenously exposed to excessive risks. The theory offers several novel perspectives on policy debates. For instance, it suggests that limiting government bailouts to interbank exposures can effectively reduce endogenous systemic risk.