DP16204 Financial Architecture and Financial Stability

Author(s): Franklin Allen, Ansgar Walther
Publication Date: May 2021
Keyword(s): Financial architecture, financial regulation, Financial Stability, interbank networks, Shadow banks
JEL(s): G01, G21, G23, G28
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16204

This paper studies the links between financial stability and the architecture of financial systems. We review the existing literature and provide organizing frameworks for analyzing three empirically important aspects of financial architecture: The rise of non-bank financial intermediaries, the regulatory response to these structural changes, and the emergence of complex interbank networks. One of our main new results is a necessary and sufficient condition for whether non-bank intermediaries are immune to runs in an extended version of the Diamond-Dybvig model.