- Title Pages
- Dedication
- Acknowledgments
- Introduction
- I Connectedness, Contagion, and Correlation: Definitions and a Review of the Economic Literature
- 1 The Concept of Connectedness
- 2 The Concept and History of Contagion
- 3 The Concept of Correlation
- II Connectedness in the Crisis
- 4 Asset Connectedness: Lehman and AIG
- 5 Liability Connectedness: Money Market Funds and Tri-Party Repo Market
- 6 Dodd–Frank Act Policies to Address Connectedness
- III Contagion
- 7 Contagion in the 2008 Crisis: The Run on the Nonbank Sector, “Shadow Banks”
- 8 History of Lender of Last Resort in the United States
- 9 Dodd–Frank Restrictions on the Lender-of-Last-Resort Power
- 10 Comparison of LLR Powers of Fed with Bank of England, European Central Bank, and Bank of Japan
- 11 Strengthening the LLR Powers of the Fed
- 12 Liability Insurance and Guarantees
- 13 Insuring Money Market Funds
- IV Ex ante Policies to Avoid Contagion: Capital, Liquidity, Resolution, Money Market Mutual Fund Reform, and Limits on Short-Term Funding
- 14 Capital Requirements: Basel III Framework
- 15 Liquidity Requirements
- 16 Bank Resolution Procedures, Contingent Capital (CoCos), and Bail-Ins
- 17 Dodd–Frank Orderly Liquidation for Nonbank SIFIs (Including Bank Holding Companies)
- 18 Living Wills
- 19 Money Market Mutual Fund Reform
- 20 Dependence of the Financial System on Short-Term Funding
- 21 Government Crowding Out of Private Issuance of Short-Term Debt
- V Public Capital Injections into Insolvent Financial Institutions
- 22 Capital Purchase Program and Other TARP Support Programs
- 23 Criticisms of Bailouts Generally
- 24 Specific Criticisms of TARP
- 25 Standing Bailout Programs
- 26 Conclusion
- Appendix
- Index
The Concept of Connectedness
The Concept of Connectedness
- Chapter:
- (p.3) 1 The Concept of Connectedness
- Source:
- Connectedness and Contagion
- Author(s):
Hal S. Scott
- Publisher:
- The MIT Press
This chapter discusses the first of the three components of systemic risk: connectedness. Asset connectedness is the concern that the failure of one financial institution will provoke a chain reaction of failures by other financial institutions with direct credit exposures to the failed institutions. Liability connectedness refers to the connection between the providers and recipients of short-term funding, whereby if a funding institution fails, the failure of its dependent recipient institutions will also result. Neither asset connectedness nor liability connectedness defaults were a problem during the 2008 financial crisis. The losses imposed on firms by Lehman Brothers were not large enough to push them into bankruptcy. Moreover, liability connectedness defaults were not a problem during the crisis, as Lehman, nor other financial institutions, were an important source of short-term funding for other financial institutions.
Keywords: asset connectedness, liability connectedness, financial institution, credit exposure, short-term funding, defaults, financial crisis, systemic risk
MIT Press Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.
Please, subscribe or login to access full text content.
If you think you should have access to this title, please contact your librarian.
To troubleshoot, please check our FAQs, and if you can't find the answer there, please contact us.
- Title Pages
- Dedication
- Acknowledgments
- Introduction
- I Connectedness, Contagion, and Correlation: Definitions and a Review of the Economic Literature
- 1 The Concept of Connectedness
- 2 The Concept and History of Contagion
- 3 The Concept of Correlation
- II Connectedness in the Crisis
- 4 Asset Connectedness: Lehman and AIG
- 5 Liability Connectedness: Money Market Funds and Tri-Party Repo Market
- 6 Dodd–Frank Act Policies to Address Connectedness
- III Contagion
- 7 Contagion in the 2008 Crisis: The Run on the Nonbank Sector, “Shadow Banks”
- 8 History of Lender of Last Resort in the United States
- 9 Dodd–Frank Restrictions on the Lender-of-Last-Resort Power
- 10 Comparison of LLR Powers of Fed with Bank of England, European Central Bank, and Bank of Japan
- 11 Strengthening the LLR Powers of the Fed
- 12 Liability Insurance and Guarantees
- 13 Insuring Money Market Funds
- IV Ex ante Policies to Avoid Contagion: Capital, Liquidity, Resolution, Money Market Mutual Fund Reform, and Limits on Short-Term Funding
- 14 Capital Requirements: Basel III Framework
- 15 Liquidity Requirements
- 16 Bank Resolution Procedures, Contingent Capital (CoCos), and Bail-Ins
- 17 Dodd–Frank Orderly Liquidation for Nonbank SIFIs (Including Bank Holding Companies)
- 18 Living Wills
- 19 Money Market Mutual Fund Reform
- 20 Dependence of the Financial System on Short-Term Funding
- 21 Government Crowding Out of Private Issuance of Short-Term Debt
- V Public Capital Injections into Insolvent Financial Institutions
- 22 Capital Purchase Program and Other TARP Support Programs
- 23 Criticisms of Bailouts Generally
- 24 Specific Criticisms of TARP
- 25 Standing Bailout Programs
- 26 Conclusion
- Appendix
- Index
