Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/244259 
Year of Publication: 
2020
Series/Report no.: 
ESRB Working Paper Series No. 107
Publisher: 
European Systemic Risk Board (ESRB), European System of Financial Supervision, Frankfurt a. M.
Abstract: 
I study the problem of regulating a network of interdependent financial institutions that is prone to contagion when there is uncertainty regarding its precise structure. I show that such uncertainty reduces the scope for welfare-improving interventions. While improving network transparency potentially reduces this uncertainty, it does not always lead to welfare improvements. Under certain conditions, regulation that reduces the risk-taking incentives of a small set of institutions can improve welfare. The size and composition of such a set crucially depend on the interplay between (i) the (expected) susceptibility of the network to contagion, (ii) the cost of improving network transparency, (iii) the cost of regulating institutions, and (iv) investors' preferences.
Subjects: 
Financial networks
contagion
policy design under uncertainty
JEL: 
C6
E61
G01
Persistent Identifier of the first edition: 
ISBN: 
978-92-9472-128-0
Document Type: 
Working Paper

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