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Banks are optimally opaque institutions. They produce debt for use as a transaction medium (bank money), which requires … that information about the backing assets - loans - not be revealed, so that bank money does not fluctuate in value …-insensitive assets. For the economy as a whole, firms endogenously separate into bank finance and capital market/stock market finance …
Persistent link: https://www.econbiz.de/10013051755
We develop a model of the joint capital structure decisions of banks and their borrowers. Strikingly high bank leverage … emerges naturally from the interplay between two sets of forces. First, seniority and diversification reduce bank asset … underlie our structural model, we can quantify the impact capital regulation and other government interventions have on bank …
Persistent link: https://www.econbiz.de/10013072879
their investors. We show the bank has to have a fragile capital structure, subject to bank runs, in order to perform these … functions. Far from being an aberration to be regulated away, the funding of illiquid loans by a bank with volatile demand … such as narrow banking and bank capital requirements …
Persistent link: https://www.econbiz.de/10012763345
Financial safety nets are incomplete social contracts that assign responsibility to various economic sectors for preventing, detecting, and paying for potentially crippling losses at financial institutions. This paper uses the theories of incomplete contracts and sequential bargaining to...
Persistent link: https://www.econbiz.de/10012760523
of deposit insurance as a function of capital-asset ratio for a bank with demand liabilities and longer term, default …
Persistent link: https://www.econbiz.de/10012763217
This paper finds that banks and non-banks respond differently to increased competition in consumer credit markets. Increased competition and the greater threat of failure induces banks to specialize more in relationship business lending, and surviving banks are more profitable. However,...
Persistent link: https://www.econbiz.de/10012864142
We explain the emergence of a variety of intermediaries in a model based only on differences in their funding costs. Banks have a low cost of capital due to, say, safety nets or money-like liabilities. We show, however, that this can be a disadvantage, because it exacerbates...
Persistent link: https://www.econbiz.de/10012868358
Rising costs of and returns to college have led to sizeable increases in the demand for student loans in many countries. In the U.S., student loan default rates have also risen for recent cohorts as labor market uncertainty and debt levels have increased. We discuss these trends as well as...
Persistent link: https://www.econbiz.de/10013030136
that makes risky long-term loans to firms, funded by deposits from savers. Government guarantees create a role for bank …
Persistent link: https://www.econbiz.de/10012916163
This paper analyzes a class of competitive economies with production, incomplete financial markets, and agency frictions. Firms take their production, financing, and contractual decisions so as to maximize their value under rational conjectures. We show that competitive equilibria exist and that...
Persistent link: https://www.econbiz.de/10013049698