Elimination of systemic risk in financial networks by means of a systemic risk transaction tax

12653 11 50437 2 134911 document 50437 1401.8026v3.pdf application/pdf ef5f918e299824f3f330811d5d82c305 MD5 2962916 2016-04-15 06:19:55 https://pure.iiasa.ac.at/id/eprint/12653/1/1401.8026v3.pdf 12653 1 1 application/pdf text en public cc_by

1401.8026v3.pdf

accepted 50438 2 134914 document 50438 lightbox.jpg image/png ad3976aa926d9e435014e5a19b08c006 MD5 53349 2016-04-15 06:20:21 https://pure.iiasa.ac.at/id/eprint/12653/2/lightbox.jpg 12653 2 2 image/png other Thumbnails conversion from text to thumbnail_lightbox en public

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http://eprints.org/relation/isVersionOf https://pure.iiasa.ac.at/id/document/50437 http://eprints.org/relation/isVolatileVersionOf https://pure.iiasa.ac.at/id/document/50437 http://eprints.org/relation/isIndexCodesVersionOf https://pure.iiasa.ac.at/id/document/50437 archive 2 disk0/00/01/26/53 2016-04-11 16:57:12 2021-08-27 17:40:37 2016-04-11 16:57:12 article show Poledna S. 2083 Thurner S. 1918 Elimination of systemic risk in financial networks by means of a systemic risk transaction tax pub prog_asa prog_risk prog_rpv Systemic risk, Resilience, Agent-based modelling, Self-organization, Network optimization, DebtRank, Banking regulation, Financial transactions taxes, Sustainability, C63, D85, G01, G18, G21 Financial markets are exposed to systemic risk (SR), the risk that a major fraction of the system ceases to function, and collapses. It has recently become possible to quantify SR in terms of underlying financial networks where nodes represent financial institutions, and links capture the size and maturity of assets (loans), liabilities and other obligations, such as derivatives. We demonstrate that it is possible to quantify the share of SR that individual liabilities within a financial network contribute to the overall SR. We use empirical data of nationwide interbank liabilities to show that the marginal contribution to overall SR of liabilities for a given size varies by a factor of a thousand. We propose a tax on individual transactions that is proportional to their marginal contribution to overall SR. If a transaction does not increase SR, it is tax-free. With an agent-based model (ABM) (CRISIS macro-financial model), we demonstrate that the proposed ‘Systemic Risk Tax’ (SRT) leads to a self-organized restructuring of financial networks that are practically free of SR. The SRT can be seen as an insurance for the public against costs arising from cascading failure. ABM predictions are shown to be in remarkable agreement with the empirical data and can be used to understand the relation of credit risk and SR. 2016 10.1080/14697688.2016.1156146 235 307 public Quantitative Finance 1-15 TRUE 1469-7688 https://arxiv.org/abs/1401.8026 author FALSE no info:eu-repo/semantics/article