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- Title
Are Dominos a Good Metaphor for Systemic Risk in Banking?
- Authors
Bédard, Mathieu
- Abstract
This article compares financial contagion theories relevant to systemic risk in banking, namely counterparty contagion and informational contagion, and critically reviews the literature on past "Too Big to Fail" bankruptcies. Policy proposals to limit the adverse effects of contagion are dependent on which contagion theory best describes the phenomenon. Paradoxically, while counterparty contagion theory seems to dominate through the domino metaphor, empirical and theoretical literature gives little credence to it. In light of the literature reviewed, a better metaphor for financial contagion would be a single domino falling, prompting investors to question the solidity of similar dominos.
- Subjects
DOMINO theory; METAPHOR; SYSTEMIC risk (Finance); BANKING industry; COUNTERPARTY risk; FINANCIAL bailouts; EMPIRICAL research
- Publication
International Journal of Business, 2012, Vol 17, Issue 4, p352
- ISSN
1083-4346
- Publication type
Article