Bank heterogeneity and financial stability

Itay Goldstein, Alexandr Kopytov, Lin Shen and Haotian Xiang

Journal of Financial Economics, 2024, vol. 162, issue C

Abstract: We propose a model of the financial system in which banks are individually prone to runs and connected through fire sales. Strategic complementarities within and across banks amplify each other, making heterogeneity in bank risks a key factor shaping the fragility of each bank and the entire system. As long as different banks are interconnected, an increase in heterogeneity stabilizes all banks. Reductions in asset commonality, bank-specific disclosures, and even broad-based policies such as asset purchases and liquidity requirements can enhance stability by increasing bank heterogeneity.

Keywords: Financial fragility; Fire sales; Strategic complementarity; Bank run (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X24001570
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:162:y:2024:i:c:s0304405x24001570

DOI: 10.1016/j.jfineco.2024.103934

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().