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] Interconnectedness among financial institutions (banks) can play a major role in precipitating systemic financial crises. [2] Lack of … liquidating risky loans. Interconnectedness among their asset portfolios can obscure information about these portfolios, causing … interconnectedness. The optimal degree of regulation, which may depend on depositors’ degree of risk aversion, may not eliminate …
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We look at the effect of capital rules on a banking system that is connected through correlated credit exposures and interbank lending. The rules, which combine individual bank characteristics and interconnectivity measures of interbank lending, are to minimize a measure of system-wide losses....
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contrast, a bank’s interconnectedness is regarded as an indicator of its exposure to systemic risk. International interbank …
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