Insurance companies play an important role in supporting economic activity. But insurers are exposed to a number of risks and can become distressed or fail. This article considers a number of channels through which insurance companies could have adverse effects on financial stability, including:...

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...