Rollover risk, network structure and systemic financial crises

Kartik Anand, Prasanna Gai and Matteo Marsili

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 8, 1088-1100

Abstract: The breakdown of short-term funding markets was a key feature of the global financial crisis of 2007/2008. Drawing on ideas from global games and network growth, we show how network topology interacts with the funding structure of financial institutions to determine system-wide crises. Bad news about a financial institution can lead others to lose confidence in it and their withdrawals, in turn, trigger problems across the interbank network. Once broken, credit relations take a long time to re-establish as a result of common knowledge of the equilibrium. Our findings shed light on public policy responses during and after the crisis.

Keywords: Interbank networks; Credit crisis; Liquidity freeze (search for similar items in EconPapers)
JEL-codes: C72 G01 G21 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (77)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:8:p:1088-1100

DOI: 10.1016/j.jedc.2012.03.005

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