Financial networks : contagion, commitment, and private sector bailouts

Deskripsi

I develop a model of financial networks in which linkages not only spread contagion, but also induce private sector bailouts, where liquid banks bail out illiquid banks because of the threat of contagion. Introducing this bailout possibility, I show taht linkages may be optimal ex ante because they allow banks to obtain some mutual insurance even though formal commitments are impossible..Printed Journal