Individual versus systemic risk and the Regulator's Dilemma

Beale, Nicholas; Rand, David G.; Battey, Heather; Croxson, Karen; May, Robert M.; Nowak, Martin A.

doi:10.1073/pnas.1105882108

Cited by 146 publications

(163 citation statements)

References 45 publications

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“…In the past 5 years, essential differences between microand macro-prudential policies have been emphasized by many academic researchers, central bankers and regulators [1][2][3]. Since the failures of Bear Stearns and Lehman Brothers in 2008, there seems to have been wide agreement that micro-prudential policies do not necessarily add up to a macro-prudential policy.…”

Section: Introductionmentioning

confidence: 99%

“…Beale et al [1] recently pointed out that higher a e-mail: kobayashi@econ.kobe-u.ac.jp 1 In this paper, any type of financial institution is called a "bank'' for brevity.…”

Section: Introductionmentioning

confidence: 99%

“…While those studies focus mainly on the topological aspect of financial networks, the portfolio structure of individual banks is another key to understanding systemic stability 1 . Beale et al [1] recently pointed out that higher a e-mail: kobayashi@econ.kobe-u.ac.jp 1 In this paper, any type of financial institution is called a "bank'' for brevity.…”

Section: Introductionmentioning

confidence: 99%

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Network versus portfolio structure in financial systems

Kobayashi

2013

Eur. Phys. J. B

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Abstract. The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of -2009. Recently, Beale et al. [Proc. Natl. Acad. Sci. USA 108, 12647 (2011] demonstrated that higher portfolio diversity among banks would reduce systemic risk by decreasing the risk of simultaneous defaults at the expense of a higher likelihood of individual defaults. In practice, however, a bank default has an externality in that it undermines other banks' balance sheets. This paper explores how each of these different sources of risk, simultaneity risk and externality, contributes to systemic risk. The results show that the allocation of external assets that minimizes systemic risk varies with the topology of the financial network as long as asset returns have negative correlations. In the model, a well-known centrality measure, PageRank, reflects an appropriately defined "infectiveness" of a bank. An important result is that the most infective bank needs not always to be the safest bank. Under certain circumstances, the most infective node should act as a firewall to prevent large-scale collective defaults. The introduction of a counteractive portfolio structure will significantly reduce systemic risk.

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Section: Introductionmentioning

confidence: 99%

“…Beale et al [1] recently pointed out that higher a e-mail: kobayashi@econ.kobe-u.ac.jp 1 In this paper, any type of financial institution is called a "bank'' for brevity.…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Network versus portfolio structure in financial systems

Kobayashi

2013

Eur. Phys. J. B

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“…Global systemic risk is a direct result of globalisation: it is a networked risk. While networks make risk more manageable in some ways by adding robustness, they can also increase fragility (Beale et al 2011;Goldin and Vogel 2010), because a break in one part of the network affects the whole network. The complexity of global networks sits uneasily with the existence of nation states (e.g.…”

Section: Systemic Volcanic Risk: Global Communication Structures and mentioning

confidence: 99%

Imagining the Unimaginable: Communicating Extreme Volcanic Risk

Donovan

Oppenheimer

2016

Advances in Volcanology

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This chapter considers the challenges surrounding the management of extreme volcanic risk. We examine eruption scenarios based on past episodes and assess the key issues that might arise should similar events occur in the future. The nature of such eruptions will entail transboundary and multi-scalar hazards. In a globalised world, the geopolitical and societal issues that are likely to emerge cannot all be predicted, and communication technologies themselves are likely to be affected. We explore two aspects: communication prior to the eruption, and communication during the eruption. To the best of our knowledge, all large eruptions are presaged by sensible phenomena but the enduring challenge for volcanic hazard assessment and risk management will remain the uncertainty surrounding evaluations of the likelihood, timing, nature and magnitude of potentially damaging activity. At present, too, communication of volcanic risk beyond the borders of the country where the volcano is located is generally patchy and unsystematic in most parts of the world (with the exception of the threat of ash clouds to aviation). In the preparatory phase, it is also critical to establish robust communication strategies that are resilient during an eruption. Such strategies would be essential for communicating the availability of supplies, the extent and nature of damage, and the ongoing status of the eruption.

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“…However, although it remains a contested term, there is some convergence toward common usage in the literature. 3 Specifically, many scholars define "systemic risk" as the chance that all or a large portion of the financial system fails (Beale et al 2011). In many instances, the sources of "systemic risk" are identified as common exposures that propagate problems at a single firm across several.…”

Section: _________________________mentioning

confidence: 99%