scholarly journals Optimization of Fire Sales and Borrowing in Systemic Risk

2019 ◽  
Vol 10 (1) ◽  
pp. 68-88 ◽  
Author(s):  
Maxim Bichuch ◽  
Zachary Feinstein
Keyword(s):  
Systemic Risk ◽  
Fire Sales

scholarly journals Systemic Risk Modeling

2020 ◽  
Vol 20 (54) ◽  
Author(s):  
Raphael Espinoza ◽  
Miguel Segoviano ◽  
Ji Yan
Keyword(s):  
Theoretical Model ◽  
Empirical Model ◽  
Systemic Risk ◽  
Empirical Models ◽  
Equity Returns ◽  
Counterparty Risk ◽  
Risk Modeling ◽  
Cross Sectional ◽  
Fire Sales ◽  
Multivariate Density

We propose a framework to link empirical models of systemic risk to theoretical network/ general equilibrium models used to understand the channels of transmission of systemic risk. The theoretical model allows for systemic risk due to interbank counterparty risk, common asset exposures/fire sales, and a “Minsky" cycle of optimism. The empirical model uses stock market and CDS spreads data to estimate a multivariate density of equity returns and to compute the expected equity return for each bank, conditional on a bad macro-outcome. Theses “cross-sectional" moments are used to re-calibrate the theoretical model and estimate the importance of the Minsky cycle of optimism in driving systemic risk.

scholarly journals Illiquidity and All Its Friends

2011 ◽  
Vol 49 (2) ◽  
pp. 287-325 ◽  
Author(s):  
Jean Tirole
Keyword(s):  
Adverse Selection ◽  
Systemic Risk ◽  
Information Acquisition ◽  
Asset Prices ◽  
Balance Sheet ◽  
Market Value ◽  
Capital Adequacy ◽  
Fire Sales ◽  
Liquidity Provision

The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don't know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistic, and asks whether liquidity should be regulated given that a capital adequacy requirement is already in place. The paper then analyzes market breakdowns due to either adverse selection or shortages of financial muscle, and explains why such breakdowns are endogenous to balance sheet choices and to information acquisition. It then looks at what economics can contribute to the debate on systemic risk and its containment. Finally, the paper takes a macroeconomic perspective, discusses shortages of aggregate liquidity, and analyzes how market value accounting and capital adequacy should react to asset prices. It concludes with a topical form of liquidity provision, monetary bailouts and recapitalizations, and analyzes optimal combinations thereof; it stresses the need for macro-prudential policies. (JEL E44, G01, G21, G28, G32, L51)

scholarly journals Knowledge and Governance: Can Systemic Risk in Financial Markets Be Managed? The Case of the Euro Crisis

2020 ◽  
pp. 113-128
Author(s):  
Stephen Bell ◽  
Andrew Hindmoor
Keyword(s):  
Financial Crisis ◽  
Collective Action ◽  
Financial Markets ◽  
Political Science ◽  
Systemic Risk ◽  
Institutional Analysis ◽  
Euro Crisis ◽  
Fire Sales ◽  
Governance Arrangements

AbstractThe crystallization of systemic risk in financial markets occurs when financial actors collectively (if unwillingly) bring on a major financial crisis through the withholding of credit and asset fire sales. The management and prevention of such calamities is our focus. We introduce the tools of political science, especially governance and institutional analysis, to help us probe the key dynamics at work. We then show that where appropriate knowledge and governance arrangements can be put in place, collective action may be arranged to help prevent the crystallization of systemic risk. We use the euro crisis to help illustrate our arguments.

scholarly journals Systemic Risk in Financial Networks: A Survey

2021 ◽  
Vol 13 (1) ◽  
Author(s):  
Matthew O. Jackson ◽  
Agathe Pernoud
Keyword(s):  
Systemic Risk ◽  
Online Publication ◽  
Financial Networks ◽  
Annual Review ◽  
Publication Date ◽  
Feedback Effects ◽  
Optimal Regulation ◽  
Fire Sales ◽  
Different Types ◽  
The Relationship

We provide an overview of the relationship between financial networks and systemic risk. We present a taxonomy of different types of systemic risk, differentiating between direct externalities between financial organizations (e.g., defaults, correlated portfolios, fire sales), and perceptions and feedback effects (e.g., bank runs, credit freezes). We also discuss optimal regulation and bailouts, measurements of systemic risk and financial centrality, choices by banks regarding their portfolios and partnerships, and the changing nature of financial networks. Expected final online publication date for the Annual Review of Economics, Volume 13 is August 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Do Mutual Funds Flows Lead to Fire-sales and Pose Systemic Risk?

2020 ◽  
Author(s):  
Rochelle (Shelly) Antoniewicz ◽  
Christof W. Stahel
Keyword(s):  
Mutual Funds ◽  
Systemic Risk ◽  
Fire Sales
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