Journal Articles
Taming Systemically Important Financial Institutions
Authors
Freixas X, Rochet JC
UPF authors
Type
Scholarly articles
Journal title
Journal of Money, Credit and Banking
Publication year
2013
Volume
45
Number
Supl. 1
Pages
37-58
ISSN
0022-2879
Publication State
Published
Abstract
We model a Systemically Important Financial Institution (SIFI) that is too big (or too interconnected) to fail. Without credible regulation and strong supervision, the shareholders of this institution might deliberately let its managers take excessive risk. We propose a solution to this problem, showing how insurance against systemic shocks can be provided without generating moral hazard. The solution involves levying a systemic tax needed to cover the costs of future crises and more importantly establishing a Systemic Risk Authority endowed with special resolution powers, including the control of bankers' compensation packages during crisis periods.
Complete citation
Freixas X, Rochet JC. Taming Systemically Important Financial Institutions. Journal of Money, Credit and Banking 2013; 45(Supl. 1): 37-58.
