
Contents
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27.1 Introduction 27.1 Introduction
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27.2 The concept of systemic risk 27.2 The concept of systemic risk
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27.2.1 Systemic Events and Crises 27.2.1 Systemic Events and Crises
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27.2.2 The “Financial Fragility Hypothesis” 27.2.2 The “Financial Fragility Hypothesis”
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27.2.3 “Efficient” versus “Self-Fulfilling” Systemic Events 27.2.3 “Efficient” versus “Self-Fulfilling” Systemic Events
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27.2.4 Systemic Risk and Public Policy 27.2.4 Systemic Risk and Public Policy
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27.3 Theoretical Models of Systemic Risk in Banking 27.3 Theoretical Models of Systemic Risk in Banking
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27.3.1 Contagion 27.3.1 Contagion
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27.3.1.1 Interactions of Retail Depositors across Banks 27.3.1.1 Interactions of Retail Depositors across Banks
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27.3.1.2 Interbank Markets 27.3.1.2 Interbank Markets
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27.3.1.3 Payment and Settlement Systems 27.3.1.3 Payment and Settlement Systems
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27.3.1.4 “Fire Sales”, Liquidity Problems, and Endogenous Risk 27.3.1.4 “Fire Sales”, Liquidity Problems, and Endogenous Risk
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27.3.2 Macroeconomic Fluctuations, Aggregate Shocks, and Lending Booms 27.3.2 Macroeconomic Fluctuations, Aggregate Shocks, and Lending Booms
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27.3.2.1 Aggregate Shocks to the Banking Sector 27.3.2.1 Aggregate Shocks to the Banking Sector
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27.3.2.2 Credit Booms and Unraveling of Imbalances 27.3.2.2 Credit Booms and Unraveling of Imbalances
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27.4 Empirical Evidence on Systemic Risk in Banking 27.4 Empirical Evidence on Systemic Risk in Banking
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27.4.1 Evidence on Bank Contagion 27.4.1 Evidence on Bank Contagion
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27.4.2 Banking Crises, Aggregate Fluctuations, and Lending Booms 27.4.2 Banking Crises, Aggregate Fluctuations, and Lending Booms
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27.5 Conclusion 27.5 Conclusion
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References References
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27 Systemic Risk in Banking after the Great Financial Crisis
Get accessPhilipp Hartmann is Deputy Director General of the research department at the European Central Bank, which he helped build up from its beginning. He also coordinates the ECB’s work on financial integration and is a Fellow of the Centre for Economic Policy Research. Previously, he held positions at the London School of Economics, the European Monetary Institute and Erasmus University Rotterdam. He published research on financial, monetary, and international issues in numerous journal articles and several books. He serves as an associate editor of the Journal of Financial Stability. His policy work has been published in many official reports and discussed in fora including the ECOFIN Council, the ECB Governing Council, the Basel Committee on Banking Supervision and the United Nations Economic Commission for Europe. He holds a Doctorat en Sciences Economiques (Paris) earned in the European Doctoral Program in Quantitative Economics.
Olivier De Bandt is Director of International Economics and Cooperation at the Banque de France. He was previously head of the Directorate of Research and Risk Analysis at the ACPR, the French Prudential Supervision and Resolution Authority. He holds a Ph.D from the Department of Economics of the University of Chicago. He contributed many articles in peer-reviewed academic journals on stress-testing methods, the analysis of systemic risk, the impact of banking regulation, the economics of insurance. He is an Associate Editor of the Journal of Financial Stability.
José Luis Peydró has been an economist at the European Central Bank since 2005. His specialization is financial intermediation and monetary policy. He holds a PhD in Finance from INSEAD, a Masters in Economics and Finance from CEMFI, and a BA in Economics from the University of Barcelona. He won the First Prize for the best Economics BA student in Spain in 1997.
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Published:07 April 2015
Cite
Abstract
The chapter provides a comprehensive analysis of systemic risk in banking, as the primary ingredient in understanding financial crises that cause severe negative effects for the real sector. First, the important analytical elements of systemic risk are integrated into a coherent working concept. Three sources of systemic risk are distinguished, taking into account interactions between banks and asset prices, as well as the role of liquidity: contagion effects, aggregate and the endogenous buildup and unraveling of widespread financial imbalances. Ex ante (preventive) and ex post (crisis management) public policy to contain systemic risk and financial crises (including macroprudential policy) are also discussed. Second, the existing theoretical and empirical literature about systemic risk is reviewed in light of the previously developed general concept and on the basis of the experience of thefinancial crisis that started in the summer of 2007.
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