Interbank lending and systemic risk

摘要: Systemic risk refers to the propagation of a bank's economic distress other agents linked that bank through financial transactions. Banking authorities often prevent systemic an implicit insurance interbank claims, or by reducing transactions and centralizing banks' liquidity management. This paper investigates whether flexability afforded decentralized interactions can be preserved while protecting central banks from necessity conducting undesired rescue operations. It develops model in which leading is motivated peer monitoring. In this context, derives optimal prudential rules, and, particular, looks at impact monitoring on solvency ratios borrowing lending banks. Last, it provides conditions Too Big To Fail policy not justified studies possibility shock throughout system. Copyright 1996 Ohio State University Press.