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Systemic Risk and Financial Vulnerabilities: Diagnosis and Solutions

Objective

The general purpose of this research proposal is to improve our scientific understanding of the risk-taking of financial intermediaries, the sources and structure of systemic risk and to investigate new directions regarding risk measurement and optimal regulation of the financial sector.

When financial institutions experience negative shocks, they can contaminate each-other. The amplification of initial shocks can spiral into a threat to the solvency of the entire financial system: this is systemic risk. Such contagion between financial intermediaries stems from several kinds of linkages and incentive structures which the proposal investigates. The understanding, measurement and anticipation of financial fragility has been high on financial regulators' priority list since the 2008 collapse of Lehman Brothers and has been revived further by the European sovereign risk.

The research to be initiated under this proposal will mix intimately theoretical work and micro-empirical work. It will try to both increase our understanding of the financial crisis by opening the “black-box” of financial institutions and to directly touch in a concrete and forward-looking manner upon regulatory issues.

The proposal articulates a research program around five main independent projects. Each project combines modeling and empirical tests and is intended to lead to a series of separate academic papers and policy implications.

Project 1: Bank Vulnerability and Fire-Sales Spirals
Project 2: Risk-Shifting, Systemic Risk and Monetary Policy
Project 3: The Source and Dynamics of Rents in the Financial Industry
Project 4: Regulating through Information: What Level of Transparency is Optimal?
Project 5: Inequality, Political Economy and Financial Instability

Call for proposal

ERC-2012-StG_20111124
See other projects for this call

Host institution

FONDATION JEAN JACQUES LAFFONT,TOULOUSE SCIENCES ECONOMIQUES
Address
5E Etage, 1 Esp De L'universite
31080 Toulouse
France
Activity type
Research Organisations
EU contribution
€ 1 117 200
Principal investigator
Jean-Augustin Landier (Prof.)
Administrative Contact
Céline Claustre (Mrs.)

Beneficiaries (1)

FONDATION JEAN JACQUES LAFFONT,TOULOUSE SCIENCES ECONOMIQUES
France
EU contribution
€ 1 117 200
Address
5E Etage, 1 Esp De L'universite
31080 Toulouse
Activity type
Research Organisations
Principal investigator
Jean-Augustin Landier (Prof.)
Administrative Contact
Céline Claustre (Mrs.)