Working Paper: CEPR ID: DP16204
Authors: Ansgar Walther; Franklin Allen
Abstract: This paper studies the links between financial stability and the architecture of financial systems. We review the existing literature and provide organizing frameworks for analyzing three empirically important aspects of financial architecture: The rise of non-bank financial intermediaries, the regulatory response to these structural changes, and the emergence of complex interbank networks. One of our main new results is a necessary and sufficient condition for whether non-bank intermediaries are immune to runs in an extended version of the Diamond-Dybvig model.
Keywords: financial architecture; financial stability; shadow banks; interbank networks; financial regulation
JEL Codes: G01; G21; G23; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonbank financial intermediaries (G23) | self-fulfilling runs (E44) |
| floating net asset value (NAV) (G19) | run-proof status of mutual funds (G23) |
| small frictions (F12) | vulnerability of mutual funds (G23) |
| regulatory frameworks (G38) | adaptation to nonbank intermediaries (G21) |
| nonbank intermediaries (G21) | externalities imposed on the economy (D62) |
| regulation (L51) | risk of excessive leakage to unregulated sectors (G18) |