Mercredi | 2018-10-25
Salle B103 – 12h00

Olessia CAILLÉ – Louis RAFFESTIN

We provide a model in which banks that share similar portfolios have an incentive to provide each other with favorable lending conditions, in order to avoid fire sales. This mechanism helps to explain the relatively low reaction of interest rates to rising risk in short-term unsecured lending markets during the 2008-2009 crisis. Nevertheless, systemic risk is not necessarily lower when similar banks act supportively, because increased lending between similar banks leads to a more clustered banking network, which fosters contagion.