Systemic Risk: Herd Behavior, Bailout Policy, and Interest Rate Policy

• Main Authors: Ping-Heng Lee, 李秉恆
• Other Authors: Yehning Chen
• Format: Others
• Language: en_US
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/03632843091992286026

碩士 === 國立臺灣大學 === 財務金融學研究所 === 99 === I analyze how the improper bailout policy, together with the low-interest rates, can lead to a self-fulfilling systemic banking crisis. An improper bailout policy induces banks to herd by investing in similar financial derivatives and increases exposure to systemic risks in the banking industry. Banks will never take systemic risks into account if they do not suffer much due to the bailout. Moreover, a decrease in interest rates causes the regulator to bail out more banks by decreasing liquidity of the entire market. In turn, this encourages excessive risk-taking by increasing the probability of being bailed out.