Financial Networks and Systemic Risk: optimal regulation decisions

Financial Networks and Systemic Risk: optimal regulation decisions

• Author
• Wagner Eduardo Schuster
• Co-authors
• Magnus dos Reis
• Abstract

• The objective of this working in progress paper is to examine the significance of systemic risk in the aftermath of the 2008 financial crisis and more recent events such as the SVB Financial Group crisis. The paper aims to determine the optimal regulatory choices of ex-ante regulation, ex-post bailouts, or laissez-faire approaches. To accomplish this, I utilized the methodology introduced by Jackson and Pernoud (2019) by employing simulated data to compute the optimal regulatory decisions. Apart from that I also compare various Financial Centrality Measures while assessing contagion effects through stress simulations. The results highlight the critical role of networks in financial system analysis and the need for effective policy-making in regulating financial systems to prevent catastrophic scenarios, underscoring the importance of prudent regulatory measures.

• Keywords
• Finance; Banking; Systemic Risk; Financial Networks
• Subject Area
• Corporate Finance, Intermediation, and Banking

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