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dc.creatorEisert, Tim
dc.creatorEufinger, Christian
dc.date.accessioned2021-09-28T09:16:10Z
dc.date.available2021-09-28T09:16:10Z
dc.date.issued2018-05-02
dc.identifier.urihttps://fif.hebis.de/xmlui/handle/123456789/2111
dc.description.abstractThis paper explains why banks derive a benefit from being highly interconnected. We show that when banks are protected by government guarantees they can significantly increase their expected returns by channeling funds through the interbank market before these funds are invested in real assets. If banks that are protected by implicit or explicit government guarantees act as intermediaries between other banks and real investments, there is the possibility that these intermediary banks will be rescued by their governments if the real assets fail. This additional hedge increases the likelihood that banks and their creditors are repaid relative to a direct investment in those same real assets. We show that this incentive to exploit the government guarantees of other banks leads to long intermediation chains and a degree of interconnectedness that is above the welfare-optimal level, which justifies regulatory intervention.
dc.rightsAttribution-ShareAlike 4.0 International
dc.rights.urihttp://creativecommons.org/licenses/by-sa/4.0/
dc.subjectSystemic Risk Lab
dc.subjectCorporate Finance
dc.titleInterbank Networks and Backdoor Bailouts: Benefiting from other Banks' Government Guarantees
dc.typeWorking Paper
dc.source.filename10_SSRN-id1976383
dc.identifier.safeno10
dc.subject.keywordsbailout
dc.subject.keywordssystemic risk
dc.subject.keywordsinterconnectedness
dc.subject.keywordsherding
dc.subject.keywordsinterbank network
dc.subject.jelG01
dc.subject.jelG21
dc.subject.jelG28
dc.subject.topic1budget
dc.subject.topic1expect
dc.subject.topic1incorporated
dc.subject.topic2payment
dc.subject.topic2sufficient
dc.subject.topic2fund
dc.subject.topic3network
dc.subject.topic3paper
dc.subject.topic3interconnectedness
dc.subject.topic1nameMonetary Policy
dc.subject.topic2nameStability and Regulation
dc.subject.topic3nameSystematic Risk
dc.identifier.doi10.2139/ssrn.1976383


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Attribution-ShareAlike 4.0 International
Except where otherwise noted, this item's license is described as Attribution-ShareAlike 4.0 International