Abstract
This paper investigates systemic risks arising from regulatory cliff effects. Sudden discrete changes to asset properties, from regulatory cliff effects, cause financial agents to act simultaneously in a homogeneous way, exacerbating systemic risk. We develop a model which quantifies these effects, and find that under certain circumstances, even small changes have drastic consequences. Taking the model to the data, we find that current market measures imply that the circumstances are satisfied for the Danish financial system.
| Original language | English |
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| Publication date | 2018 |
| Number of pages | 44 |
| Publication status | Published - 2018 |
| Event | 2018 Financial Management Association European Conference - University of Agder, Kristiansand, Norway Duration: 13 Jun 2018 → 15 Jun 2018 http://www.fmaconferences.org/Norway/NorwayProgram.htm |
Conference
| Conference | 2018 Financial Management Association European Conference |
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| Location | University of Agder |
| Country/Territory | Norway |
| City | Kristiansand |
| Period | 13/06/2018 → 15/06/2018 |
| Internet address |
Keywords
- Banking
- Regulation
- Systemic risk
- Fire sales
- Covered bonds