This paper studies a dynamic version of the Holmstrom-Tirole model of intermediated finance. I show that competitive equilibria are not constrained efficient when the economy experiences a financial crisis. A pecuniary externality entails that banks' desire to accumulate capital over time...

Financial crises have occurred throughout history, resulting in the loss of national and international public and personal wealth, creating political uncertainty and shaking the foundations of the national, regional and international economic and social order. This book provides answers to the...