TY  - UNPD
A1  - Eisert, Tim
A1  - Eufinger, Christian
T1  - Interbank network and bank bailouts: Insurance mechanism for non-insured creditors? : [Version 20 Februar 2013]
T2  - SAFE working paper series ; No. 10
N2  - This paper presents a theory that explains why it is beneficial for banks to engage in circular lending activities on the interbank market. Using a simple network structure, it shows that if there is a non-zero bailout probability, banks can significantly increase the expected repayment of uninsured creditors by entering into cyclical liabilities on the interbank market before investing in loan portfolios. Therefore, banks are better able to attract funds from uninsured creditors. Our results show that implicit government guarantees incentivize banks to have large interbank exposures, to be highly interconnected, and to invest in highly correlated, risky portfolios. This can serve as an explanation for the observed high interconnectedness between banks and their investment behavior in the run-up to the subprime mortgage crisis.
T3  - SAFE working paper - 10 
KW  - bailout
KW  - cycle flows
KW  - cyclical liabilities
KW  - interbank network
KW  - leverage
Y1  - 2013
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/29380
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-293802
UR  - http://ssrn.com/abstract=2231984
IS  - Version 20 Februar 2013
PB  - Goethe-Univ., House of Finance, Sustainable Architecture for Finance in Europe, SAFE
CY  - Frankfurt am Main
ER  -