|
||||
|
||||
The Risk Externalities of Too Big to Fail
Nassim Nicholas Taleb NYU-Poly Charles S. Tapiero NYU-Poly November 1, 2009 NYU Poly Research Paper Abstract: This paper examines the risk externalities stemming from the size of institutions. Assuming (conservatively) that a firm risk exposure is limited to its capital while its external (and random) losses are unbounded we establish a condition for a firm to be too big to fail. In particular, expected risk externalities’ losses conditions for positive first and second derivatives with respect to the firm capital are derived. Examples and analytical results are obtained based on firms’ random effects on their external losses (their risk externalities) and policy implications are drawn that assess both the effects of “too big to fail firms” and their regulation.
Keywords: banking crisis, risk management, too big to fail JEL Classifications: D8, G11, G12, G13, N00 Working Paper SeriesDate posted: November 01, 2009 ; Last revised: November 10, 2009Suggested Citation |
|
||||||||||
© 2010 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was served by apollo5b in 0.360 seconds.