01780cas a2200241 a 4500 AALejournalIMF007135 230101c9999 xx r poo 0 0eng d 5.00 USD 9781455226061 1018-5941 BD-DhAAL BD-DhAAL International Monetary Fund. Fat-Tails and their (Un)Happy Endings : Correlation Bias and its Implications for Systemic Risk and Prudential Regulation. Washington, D.C. : International Monetary Fund, 2011. 1 online resource (21 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students The correlation bias refers to the fact that claim subordination in the capital structure of the firm influences claim holders' preferred degree of asset correlation in portfolios held by the firm. Using the copula capital structure model, it is shown that the correlation bias shifts shareholder preferences towards highly correlated assets, making financial institutions more prone to fail and increasing systemic risk given interconnectedness in the financial system. The implications for systemic risk and prudential regulation are assessed under the prism of Basel III, and potential solutions involving changes to the prudential framework and corporate governance are suggested. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2011/082 Full text available on IMF http://elibrary.imf.org/view/journals/001/2011/082/001.2011.issue-082-en.xml IMF e-Library