Financial Risk Capacity
Financial crises are particularly severe and lengthy when banks fail to recapitalize after bearing large losses. We present a model that explains the slow recovery of bank capital and economic activity. Banks provide intermediation in markets with information asymmetries. Large equity losses force banks to tighten intermediation, which exacerbates adverse selection. Adverse selection lowers bank profit margins which slows both the internal growth of equity and equity injections. This mechanism generates financial crises characterized by persistent low growth. The lack of equity injections during crises is a coordination failure that is solved when the decision to recapitalize banks is centralized.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at "http://www.nber.org/papers/w26561"
Year of publication: |
2019
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Authors: | Bigio, Saki |
Other Persons: | d'Avernas, Adrien (contributor) |
Publisher: |
[2019]: [S.l.] : SSRN |
Subject: | Finanzkrise | Financial crisis | Finanzierung | Financing | Bank | Risikokapital | Venture capital |
Saved in:
freely available
Extent: | 1 Online-Ressource (57 p) |
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Series: | NBER Working Paper ; No. w26561 |
Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 2019 erstellt |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012857809