Wolf Wagner

TL;DR: The authors showed that even though diversification reduces each institution's individual probability of failure, it makes systemic crises more likely, and that full diversification is no longer desirable as a result and the optimal degree of diversification may be arbitrarily low.

TL;DR: The work in this paper is part of the CEPR project "Politics, Economics and Global Governance: The European Dimensions" (PEGGED) funded by the European Commission under its Seventh Framework Programme for Research (Collaborative Project) Contract no. 217559.

TL;DR: In this paper, the authors examined the consequences of increased asset liquidity on bank stability and found that the effect of asset liquidity in the emerging markets for credit derivatives has improved the liquidity of bank assets by providing banks with various new possibilities for selling and hedging their risks.

TL;DR: This article showed that an increased liquidity of bank assets, paradoxically, increases banking instability and the externalities associated with banking failures, even though higher asset liquidity directly benefits stability by encouraging banks to reduce the risks on their balance sheets and by facilitating the liquidation of assets in a crisis, it also makes crises less costly for banks.

TL;DR: In this article, the authors analyzed a sample of banks that traded Credit Default Swaps and issued Collateralized Loan Obligations (CLOs) between 1997 and 2006 and found that after their first usage of either risk transfer method, these banks experienced a large and significant permanent increase in their share price beta.