Interbank Network and Bank Bailouts: Insurance Mechanism for Non-Insured Creditors?
Speaker

Erasmus School of Economics (ESE),
Erasmus University Rotterdam
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Abstract
This paper presents a theory that explains why it is benecial for banks to be highly interconnected on the interbank market. Using a simple network structure, it shows that, if there is a non-zero bailout probability, banks can signicantly increase the expected repayment of uninsured creditors by entering into cyclical liabilities on the interbank market before investing in loan portfolios. Therefore, banks are better able to attract funds from uninsured creditors. Our results show that implicit government guarantees incentivize banks to have large interbank exposures, to be highly interconnected, and to invest in highly correlated, risky portfolios.
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Information
- Type
- Research Seminar
- Programme
- Finance & Accounting
- Date
- Mon. 27 Jan. 2014
- Time
- 15:30 - 17:00
- Location
- Tinbergen Building H17-01
Contact

Remco Zwinkels
Erasmus School of Economics (ESE),
Erasmus University Rotterdam
Coordinator

Remco Zwinkels
Erasmus School of Economics (ESE),
Erasmus University Rotterdam
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