Bubbles, banks and financial stability

Kalin Nikolov

Research Bulletin, 2012, vol. 15, 2-6

Abstract: Asset price bubbles are considered to be a major risk to financial stability. In this article, we show that an asset price bubble poses a bigger risk when banks are exposed to it. This is because when the bubble bursts, banks realise losses and this may trigger bank failures and a credit crunch. In contrast, when overvalued assets are held by ordinary savers, the consequences for financial stability are less severe. We show that low bank profitability and a generous financial safety net for banks are important determinants in their decisions to take risks. JEL Classification: G0

Keywords: financial; stability (search for similar items in EconPapers)
Date: 2012-02
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Bubbles, banks and financial stability (2015)
Working Paper: Bubbles, banks and financial stability (2012)
Working Paper: Bubbles, banks and financial stability (2012)
Working Paper: Bubbles, Banks, and Financial Stability (2011)
Working Paper: Bubbles, Banks, and Financial Stability (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbrbu:2012:0015:1

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