Authors:

  • Robin Greenwood

Excerpt

Vulnerable Banks. Robin Greenwood, March 2014, Paper. "We present a model in which fire sales propagate shocks across bank balance sheets. When a bank experiences a negative shock to its equity, a natural way to return to target leverage is to sell assets. If potential buyers are limited, then asset sales depress prices, in which case one bank’s sales impact other banks with common exposures. We show how this contagion effect adds up across the banking sector, and how it can be estimated empirically using balance sheet data. We compute bank exposures to system-wide..." Link verified June 19, 2014