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Persistent link: https://www.econbiz.de/10010364602
We develop a dynamic asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk-tolerant agents (banks) borrow from risk-averse agents (i.e. take deposits) to fund levered investments. Leverage exposes banks to funding risk, which they insure by...
Persistent link: https://www.econbiz.de/10012973804
We show that maturity transformation does not expose banks to interest rate risk---it hedges it. The reason is the deposit franchise, which allows banks to pay deposit rates that are low and insensitive to market interest rates. Hedging the deposit franchise requires banks to earn income that is...
Persistent link: https://www.econbiz.de/10012854509
We develop a dynamic asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk-tolerant agents (banks) borrow from risk-averse agents (i.e. take deposits) to fund levered investments. Leverage exposes banks to funding risk, which they insure by...
Persistent link: https://www.econbiz.de/10013053833
We show that maturity transformation does not expose banks to significant interest rate risk|it hedges it. This is due to banks' deposit franchise. The deposit franchise gives banks substantial market power over deposits, allowing them to pay deposit rates that are low and insensitive to market...
Persistent link: https://www.econbiz.de/10012919327
We show that maturity transformation does not expose banks to significant interest rate risk--it actually hedges banks' interest rate risk. We argue that this is driven by banks' deposit franchise. Banks incur large operating costs to maintain their deposit franchise, and in return get...
Persistent link: https://www.econbiz.de/10012453135
We develop a dynamic asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk-tolerant agents (banks) borrow from risk-averse agents (i.e. take deposits) to fund levered investments. Leverage exposes banks to funding risk, which they insure by...
Persistent link: https://www.econbiz.de/10012458523
Persistent link: https://www.econbiz.de/10010443076
Persistent link: https://www.econbiz.de/10010394625
We build a macro-finance model of shadow banking: the transformation of risky assets into securities that are money-like in quiet times but become illiquid when uncertainty spikes. Shadow banking economizes on scarce collateral, expanding liquidity provision in booms, boosting asset prices and...
Persistent link: https://www.econbiz.de/10012974095