{
  "title": "Interconnectedness, Systemic Crises and Recessions",
  "publication": "IMF Working Papers, February 27, 2015",
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  "summary": "This relatively simple model attempts to capture and integrate four widely held views about financial crises. [1] Interconnectedness among financial institutions (banks) can play a major role in precipitating systemic financial crises.",
  "sections": [
    {
      "heading": "Model overview",
      "content": "- Objective: Capture and integrate four widely held views about financial crises.\n- Core elements:\n  - Banks make decisions about initiating and liquidating risky loans.\n  - Interconnectedness among banks’ asset portfolios can obscure information about portfolio quality.\n  - Lack of information about the quality of bank portfolios affects crisis dynamics.\n  - Loss of confidence in the financial system influences the length and severity of recessions."
    },
    {
      "heading": "Key findings and mechanisms",
      "content": "- Four foundational views captured:\n  - [1] Interconnectedness among financial institutions (banks) can play a major role in precipitating systemic financial crises.\n  - [2] Lack of information about the quality of bank portfolios also plays a role in precipitating systemic crises.\n  - [3] Financial crises, particularly systemic ones, are often followed by severe, lengthy recessions.\n  - [4] Loss of confidence in the financial system is partly responsible for the length and severity of these recessions.\n- Mechanisms identified:\n  - Interconnectedness can obscure information about asset portfolios, causing inefficient decisions about liquidation.\n  - Obscured information affects decisions about retention of managers who assess credit risk, reducing future risk-assessment effectiveness.\n  - Inefficient liquidation and impaired risk assessment can increase the depth of recessions and produce systemic financial crises.\n  - These dynamics can increase the probability of lengthy, severe recessions."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Government objective: Act in the interest of current and future depositors.\n- Policy lever: Increase transparency of bank portfolios by limiting interconnectedness.\n- Optimal regulation considerations:\n  - The optimal degree of regulation may depend on depositors’ degree of risk aversion.\n  - Even optimal regulation may not eliminate financial crises."
    },
    {
      "heading": "Publication and metadata",
      "content": "- Authors: Marco A Espinosa-Vega, Steven Russell\n- Date: February 27, 2015\n- Series: IMF Working Papers\n- Working Paper No.: 2015/046\n- Issue: 046\n- Volume: 2015\n- Pages: 48\n- DOI: https://doi.org/10.5089/9781498386029.001\n- Stock No: WPIEA2015046\n- ISBN: 9781498386029\n- ISSN: 1018-5941\n- Subjects: Banking; Distressed assets; Financial contagion; Financial crises; Financial institutions; Financial sector policy and analysis; Loans; Systemic crises\n- Keywords: asset portfolio; asset portfolio consist; bank asset liquidation; bank B; banks' manager; Distressed assets; diversification regime; Financial contagion; financial crisis; interconnectedness; Loans; portfolio diversification; recession; return outcome; Systemic crises; systemic risk; WP\n\nSource: IMF Working Paper \"Interconnectedness, Systemic Crises and Recessions\" (2015) by Marco A Espinosa-Vega and Steven Russell.\n\n---\n\n Content in this bundle\n\n- Wp1546\n  - Wp1546 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp1546 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/interconnectedness-systemic-crises-and-recessions-42747"
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    "Authors: Marco A Espinosa-Vega, Steven Russell",
    "Published: February 27, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781498386029.001",
    "Objective: Capture and integrate four widely held views about financial crises.",
    "Core elements:",
    "Four foundational views captured:",
    "Mechanisms identified:",
    "Government objective: Act in the interest of current and future depositors.",
    "Policy lever: Increase transparency of bank portfolios by limiting interconnectedness.",
    "Optimal regulation considerations:",
    "Authors: Marco A Espinosa-Vega, Steven Russell",
    "Date: February 27, 2015",
    "Series: IMF Working Papers",
    "Working Paper No.: 2015/046",
    "Issue: 046",
    "Volume: 2015",
    "Pages: 48",
    "DOI: https://doi.org/10.5089/9781498386029.001",
    "Stock No: WPIEA2015046",
    "ISBN: 9781498386029",
    "ISSN: 1018-5941",
    "Subjects: Banking; Distressed assets; Financial contagion; Financial crises; Financial institutions; Financial sector policy and analysis; Loans; Systemic crises",
    "Keywords: asset portfolio; asset portfolio consist; bank asset liquidation; bank B; banks' manager; Distressed assets; diversification regime; Financial contagion; financial crisis; interconnectedness; Loans; portfolio diversification; recession; return outcome; Systemic crises; systemic risk; WP",
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