In this paper, we study the implications of diversification in the asset portfolios of banks
for financial stability and systemic risk. Adding to the existing literature, we analyse this issue in
a network model of the interbank market. We carry out a simulation study that determines the
probability of a systemic crisis in the banking network as a function of both the level of diversification,
and the connectivity and structure of the financial network. In contrast to earlier studies we find that
diversification at the level of individual banks may be beneficial for financial stability even if it does
lead to a higher asset return correlation across banks.
| Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:6334 |
| Date | January 2018 |
| Creators | Frey, RĂĽdiger, Hledik, Juraj |
| Publisher | MDPI |
| Source Sets | Wirtschaftsuniversität Wien |
| Language | English |
| Detected Language | English |
| Type | Article, PeerReviewed |
| Format | application/pdf |
| Rights | Creative Commons: Attribution 4.0 International (CC BY 4.0) |
| Relation | http://dx.doi.org/10.3390/risks6020054, http://www.mdpi.com/, http://www.mdpi.com/2227-9091/6/2/54, http://epub.wu.ac.at/6334/ |
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