In the Quest of Systemic Externalities: A Review of the Literature *

Wolf Wagner ()

CESifo Economic Studies, 2010, vol. 56, issue 1, 96-111

Abstract: We review the banking literature with the view of identifying systemic externalities arising from bank failures. We are particularly interested in how such externalities may depend on the characteristics of the financial system at the time of failure, and on the characteristics of the failing bank itself. We conclude that the majority of the mechanisms in the literature suggest that externalities are higher at times when other banks are failing as well or are close to failure. We discuss the implications for optimal capital requirements. (JEL codes: G01, G21, G28) Copyright The Author 2009. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2010
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