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159th Biweekly Academic Forum

作者:     日期:2015-11-27    来源:

1. Topic: Self-fulfilling Fire Sales, Bank Runs and Contagion: Implications for Bank Capital and Regulatory Transparency

2. Lecturer: Li Zhao, PhD of Universitat Pompeu Fabra (Graduated in December, 2015).

He was awarded double bachelor of mathematical economics in Wuhan University in 2006 and master of economics in Toulouse School in 2009. Dr Li’s research field includes corporate finance, financial regulation and macro finance.

3. Time: December 1st, 2015(Tuesday), 12:30-14:00

4. Place: Main Building Room 913

5. Host: Wang Yaqi, Lecturer of School of Finance, Central University of Economics and Finance

Abstract: In a global-games framework, we endogenize bank asset fire sales by emphasizing adverse selection: Asset prices collapse because in banking crises, assets sold by illiquid banks can hardly be distinguished from those by insolvent banks. Such adverse selection makes runs and fire sales self-fulfilling and mutually reinforcing; it also generates financial contagion when banks have common risk exposures. The theoretical framework delivers two new policy insights. (1) High capital holding can have unintended consequences on bank illiquidity and insolvency, because a run on a well-capitalized bank signals unusually high risk and reduces asset prices. (2) Regulatory transparency about banks’ common risk exposure can be suboptimal: While a favorable disclosure saves banks from illiquidity, acknowledging a crisis causes contagion due to the pessimistic belief updating of asset buyers’.