- contribute more to systemic risk than small and narrowly focused banks. To deal with these problems, policymakers should consider …

Suppose risk-averse managers can hedge the aggregate component of their exposure to firm's cash flow risk by trading in … in favor of standard projects that contain greater aggregate risk. Such risk substitution is a form of moral hazard and … it gives rise to excessive aggregate risk in stock markets and excessive correlation of returns across firms and sectors …

Suppose risk-averse managers can hedge the aggregate component of their exposure to firm's cash flow risk by trading in … in favor of standard projects that contain greater aggregate risk. Such risk substitution is a form of moral hazard and … it gives rise to excessive aggregate risk in stock markets and excessive correlation of returns across firms and sectors …

capitalized. We employ a set of headline facts about the build-up of such risk exposures to explain how and why LCFIs adopted this … in decades preceding the current one, allowing LCFIs to take on excessive systemic risk. We also examine alternative … banking, excess liquidity due to global imbalances and mispricing of risk due to behavioral biases have some merit as …

We present a simple model of systemic risk and show how each financial institution’s contribution to systemic risk can … empirically the ability of components of SES to predict emerging systemic risk during the nancial crisis of 2007-2009. …