| Description |
1 online resource (48 pages) |
| Series |
IMF working paper, 1018-5941 ; WP/15/46 |
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IMF working paper ; WP/15/46.
|
| Contents |
Cover; Abstract; Contents; I. Introduction; II. Model; A. Basic Setup: Banks, Depositors, Loans; B. Return Distributions on Loans; Base Returns and Random Schocks Thereto; Determinants of Base Loan Returns: Manager Competence; C. Bank Interconnectedness (Asset Portfolio Diversification); Tables; Table 1. Marginal and Joint Base Loan Return Distributions; D. Liquidation of Loans; III. Construction an Equilibrium; A. Information; Figures; Figure 1. Timeline of the Model; B. The Liquidation Decision; C. The Diversification Decision; D. The ""Firing"" Decision; When is the Decision Nontrivial? |
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The Manager Replacement Decision When it is Not TrivialLooking for an Equilibrium in Which Both Banks Replace their Managers; E. Optimal Regulation; F. Characterizing Equilibria; G. Interpretations and Assumptions; H. Summary of the Baseline Example; Specification; Laissez Faire Equilibria; Equilibria Under Government Regulation; IV. Conclusions; References; References; Appendixes; Appendix A: Two Issues; Appendix B: The Baseline Numerical Example |
| Summary |
This relatively simple model attempts to capture and integrate four widely held views about financial crises. [1] Interconnectedness among financial institutions (banks) can play a major role in precipitating systemic financial crises. [2] Lack of information about the quality of bank portfolios also plays a role in precipitating systemic crises. [3] Financial crises, particularly systemic ones, are often followed by severe, lengthy recessions. [4] Loss of confidence in the financial system is partly responsible for the length and severity of these recessions. In the model, banks make decisions about initiating and liquidating risky loans. Interconnectedness among their asset portfolios can obscure information about these portfolios, causing them to make inefficient decisions about liquidation, and about retention of the managers who assess credit risk. These decisions can increase the depth of recessions, and they can produce systemic financial crises. They can also reduce the effectiveness of future bank risk assessment, increasing the probability of lengthy, severe recessions. The government, acting in the interest of current and future depositors, may wish to increase the transparency of bank portfolios by limiting interconnectedness. The optimal degree of regulation, which may depend on depositors' degree of risk aversion, may not eliminate financial crises. --Abstract |
| Notes |
"February 2015." |
|
"Institute for Capacity Development." |
| Bibliography |
Includes bibliographical references (pages 33-34) |
| Notes |
Online resource; title from pdf title page (IMF.org Web site, viewed March 2, 2015) |
| Subject |
Crisis management -- Finance -- Econometric models
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Financial crises -- Prevention -- Econometric models
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Financial risk management -- Econometric models
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Banks and banking -- State supervision -- Econometric models
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Recessions -- Econometric models
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Recessions -- Econometric models
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| Form |
Electronic book
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| Author |
Russell, Steven.
|
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International Monetary Fund. Institute for Capacity Development.
|
| ISBN |
1498386024 |
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9781498386029 |
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