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Kenta Toyofuku
''Risk sharing and asset commonality in the financial sector''
( 2022, Vol. 42 No.1 )
This paper develops a model to explain why asset commonality was pervaded among financial intermediaries before the global financial crisis. We show that when there is a lack of opportunities for financial intermediaries to hedge idiosyncratic shocks, they shift their asset allocation to commonly accessible assets not only to diversify their own portfolios but also to share the risk among themselves. We also show that this asset commonality arises even if the commonly held assets are risky and unproductive. In this sense, asset commonality in the financial sector can mitigate the risk of each financial intermediary but may decrease aggregate output in the economy.
Keywords: Asset commonality, diversification, risk sharing
JEL: G2 - Financial Institutions and Services: General
E4 - Money and Interest Rates: General
Manuscript Received : Nov 23 2021 Manuscript Accepted : Feb 20 2022

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