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Bank insolvencies, priority claims and systemic risk

Bougheas, Spiros; Kirman, Alan

Authors

Alan Kirman



Abstract

We review an extensive literature debating the merits of alternative priority structures for banking liabilities put forward by financial economists, legal scholars and policymakers. Up to now, this work has focused exclusively on the relative advantages of each group of creditors to monitor the activities of bankers. We argue that systemic risk is another dimension that this discussion must include. The main message of our work is that when bank failures are contagious then when regulators assign priority rights need also to take into account how the bankruptcy resolution of one institution might affect the survival of other institutions that have acted as its creditors. When the network structure is fixed the solution is straightforward. Other banks should have priority to minimize the risk of their downfall. However, if the choice of policy can affect the structure of the network, policy design becomes more complex.This is a fruitful avenue for future research.

Citation

Bougheas, S., & Kirman, A. (2016). Bank insolvencies, priority claims and systemic risk. Lecture Notes in Economics and Mathematical Systems, 683, https://doi.org/10.1007/978-3-319-40803-3_8

Journal Article Type Article
Acceptance Date Jul 1, 2016
Publication Date Sep 15, 2016
Deposit Date Oct 14, 2016
Publicly Available Date Oct 14, 2016
Journal Lecture Notes in Economics and Mathematical Systems
Electronic ISSN 0075-8442
Publisher Springer Verlag
Peer Reviewed Peer Reviewed
Volume 683
Book Title Complex Networks and Dynamics
DOI https://doi.org/10.1007/978-3-319-40803-3_8
Keywords Banks; Priority rules; Systemic risk
Public URL https://nottingham-repository.worktribe.com/output/817525
Publisher URL http://link.springer.com/chapter/10.1007/978-3-319-40803-3_8
Additional Information Title of volume: Complex networks and dynamics: social and economic interactions. The final publication is available at Springer via http://dx.doi.org/10.1007/978-3-319-40803-3_8. The date of accepance is an estimated one.

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