Competition vs. Stability: Oligopolistic Banking System with Run Risk

WPIEE2021102 Image
Price:  $0.00

Author/Editor: Damien Capelle
Release Date: © April, 2021
ISBN : 978-1-51358-674-8
Stock #: WPIEE2021102
English

Languages and formats available

EnglishFrenchSpanishArabicRussianChinesePortuguese
PDFYes
ePubYes

Description

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.




More publications in this series: Working Papers


More publications by: Damien Capelle