Competition vs. Stability: Oligopolistic Banking System with Run Risk
This paper develops a model where large financial intermediaries subject to systemic runs internalize the effect of their leverage on aggregate risk, returns and asset prices. Near the steady-state, they restrict leverage to avoid the risk of a run which gives rise to an accelerator effect. For larg...
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| Format: | eBook |
| Language: | English |
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Washington, D.C.
International Monetary Fund
2021
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| Series: | IMF Working Papers
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| Collection: | International Monetary Fund - Collection details see MPG.ReNa |
| Summary: | This paper develops a model where large financial intermediaries subject to systemic runs internalize the effect of their leverage on aggregate risk, returns and asset prices. Near the steady-state, they restrict leverage to avoid the risk of a run which gives rise to an accelerator effect. For large adverse shocks, the system enters a zone with high leverage and possibly runs. The length of time the system remains in this zone depends on the degree of concentration through a franchise value, price-drop and recapitalization channels. The speed of entry of new banks after a collapse has a stabilizing effect |
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| Physical Description: | 74 pages |
| ISBN: | 9781513582313 |