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Essays on Financial Fragility.

Zhou, Zhen.

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Essays on Financial Fragility.

Record Type:	Electronic resources : Monograph/item
Title/Author:	Essays on Financial Fragility./
Author:	Zhou, Zhen.
Published:	Ann Arbor : ProQuest Dissertations & Theses, : 2016,
Description:	266 p.
Notes:	Source: Dissertation Abstracts International, Volume: 78-01(E), Section: A.
Contained By:	Dissertation Abstracts International78-01A(E).
Subject:	Economics. -
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=10139623
ISBN:	9781339951089

Essays on Financial Fragility.
Zhou, Zhen.

Essays on Financial Fragility. - Ann Arbor : ProQuest Dissertations & Theses, 2016 - 266 p.

Source: Dissertation Abstracts International, Volume: 78-01(E), Section: A.

Thesis (Ph.D.)--New York University, 2016.

This thesis investigates the financial fragility caused by coordination risk, network externalities and asymmetric information in the financial market.

ISBN: 9781339951089Subjects--Topical Terms:

517137
Economics.

Essays on Financial Fragility.
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100 1 $a Zhou, Zhen. $3 3280358
245 1 0 $a Essays on Financial Fragility.
260 1 $a Ann Arbor : $b ProQuest Dissertations & Theses, $c 2016
300 $a 266 p.
500 $a Source: Dissertation Abstracts International, Volume: 78-01(E), Section: A.
500 $a Adviser: Douglas Gale.
502 $a Thesis (Ph.D.)--New York University, 2016.
520 $a This thesis investigates the financial fragility caused by coordination risk, network externalities and asymmetric information in the financial market.
520 $a In chapter 1, I incorporate financial panics into the analysis of financial fragility of interbank networks. The financial connections between banks not only transmit fundamental shocks, but also intensify the financial fragility caused by coordination failure, or the panic, in financial markets. A novel mechanism is found to show that financial networks with a more diversified pattern of interbank liabilities will trigger more panics and will thus be more fragile. When one bank in the network receives a shock that is large enough to make it insolvent, creditors may be uncertain about the financial linkages between their bank and the initial distressed bank. When such a crisis is underway, I show that disclosing the information about the initial distressed bank is likely to trigger more panics and make it more likely for a systemic crisis to take place.
520 $a In chapter 2 ("Diffusing Coordination Risk'' with Deepal Basak), we propose a feasible mechanism for the complete avoidance of panic-based bank runs or self-fulfilling debt crises. Panic-based bank runs can occur when depositors make their withdrawal decisions simultaneously. By imposing a withdrawal limit, one can prevent depositors from rushing to withdraw all of their funds on one date. This partitions each individual's withdrawal decision, thereby inducing a coordination game with dynamic payoff externalities. When this policy is implemented, the information about whether the bank has survived all withdrawals so far is revealed publicly. We show that if the withdrawal limit is sufficiently small, depositors ignore their private information and coordinate solely on the basis of the public news. A backward inductive argument is used to show that depositors who anticipate that no one will withdraw their funds later will also not make early withdrawals. Thus, any solvent bank can be made immune to self-fulfilling runs. We use a similar argument to show that sufficiently asynchronous debt structures could be used to overcome rollover risk. We formalize this policy in a dynamic global game of regime change and show that a sufficiently diffused policy unravels the coordination risk from the end.
520 $a In chapter 3 ("Asymmetric Information and Optimal Debt Maturity'' with Xu Wei and Ho-Mou Wu), we seek to understand why financial institutions were so reliant on short-term borrowing before the great recession, thereby exposing themselves to a significant amount of rollover risk and why the market of short-term lending collapsed after the recession began. We provide a general framework to discuss the optimal debt maturity structure choice when the creditors have asymmetric information about the types of borrowers. We show that good firms are willing to borrow in the short term because the extra information released to outside creditors in the rollover stage could help to distinguish them from the bad firms, and thus lower their refinancing costs. We construct the unique pooling equilibrium with an optimal mix of short-term and long-term debt, in which the good firms maximize their profits and bad firms find it profitable to mimic the good firms. We argue that when the quality of firms' assets starts to deteriorate (the share of good firms is diminishing) and creditors become more prudential, firms will first incur more short-term debts in order to exploit the value of intermediate information. However, when the asset qualities deteriorate further and creditors become very pessimistic, borrowing short-term is too costly and the market of short-term borrowing freezes.
590 $a School code: 0146.
650 4 $a Economics. $3 517137
650 4 $a Banking. $2 bicssc $3 1557594
650 4 $a Finance. $3 542899
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710 2 $a New York University. $b Economics. $3 1032403
773 0 $t Dissertation Abstracts International $g 78-01A(E).
790 $a 0146
791 $a Ph.D.
792 $a 2016
793 $a English
856 4 0 $u http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=10139623