Market discipline and systemic risk
We analyze a general equilibrium model in which financial institutions generate endogenous systemic risk. Banks optimally select correlated investments and thereby expose themselves to fire-sale risk so as to sharpen their incentives. Systemic risk is therefore a natural consequence of banks’ fundam...
| Main Authors: | , |
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| Format: | Journal article |
| Language: | English |
| Published: |
INFORMS
2019
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