Leverage, Systemic Risk and Financial System Health: How Do We Develop a Healthy Financial System?

Thakor, Anjan V.

doi:10.2139/ssrn.2371745

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Leverage, Systemic Risk and Financial System Health: How Do We Develop a Healthy Financial System?

Financial System, Markets and Institutional Changes ( eds: Ted Linblom, Stefan Sjogren, and Magnus Willesson), Palgrave McMillan, Forthcoming

15 Pages Posted: 26 Dec 2013 Last revised: 12 Jan 2014

See all articles by Anjan V. Thakor

Anjan V. Thakor

Washington University in St. Louis - John M. Olin Business School; Financial Theory Group; European Corporate Governance Institute (ECGI); Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering

Date Written: January 12, 2014

Abstract

This paper briefly discusses the causes of the 2007-09 financial crisis and the extent to which the systemic risk that buffeted this crisis was linked to excessive leverage. It then focuses on what is needed for a healthy financial system that has a relatively low probability of a systemic financial crisis, and the steps that will need to be taken to get there.

Keywords: financial crises, leverage, systemic risk, healthy financial system

JEL Classification: G21, G28

Suggested Citation: Suggested Citation

Thakor, Anjan V., Leverage, Systemic Risk and Financial System Health: How Do We Develop a Healthy Financial System? (January 12, 2014). Financial System, Markets and Institutional Changes ( eds: Ted Linblom, Stefan Sjogren, and Magnus Willesson), Palgrave McMillan, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2371745 or http://dx.doi.org/10.2139/ssrn.2371745