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Systemic risk and the optimal seniority structure of banking liabilities
Author(s) -
Bougheas Spiros,
Kirman Alan
Publication year - 2018
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1602
Subject(s) - systemic risk , seniority , bankruptcy , economics , interbank lending market , monetary economics , distribution (mathematics) , financial crisis , monetary policy , macroeconomics , finance , mathematics , engineering , mathematical analysis , aerospace engineering
The paper argues that systemic risk must be taken into account when designing optimal bankruptcy procedures in general, and priority rules in particular. Allowing for endogenous formation of links in the interbank market, we show that the optimal policy depends on the distribution of shocks and the severity of fire sales.