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Joseph Stiglitz | Vox EU | April 18, 2022
The interconnected structure of the financial system has been a focal point of debate among policymakers in the wake of recent financial crises. This column offers a theory to help explain the structure of the financial system and its consequences for risk-taking and systemic risk. The authors find that interconnectedness and excessive risk-taking reinforce one another and the anticipation of ex-post government intervention may exacerbate the systemic risk. The theory, in turn, has important implications for the design of macroprudential regulation.
Originally published by Vox EU. Read the full article here.