In this paper we investigate the relation between expected return and firm size. Starting with the pionnering work of Banz (1981) and Reinganum (1981), this area has been one of the most researched topics in finance over the last 15 years.

We analyze a financial collapse, such as the one which occurred during the Great Depression, from the perspective of a monetary model with multiple equilibria. The economy we consider contains financial fragility due to increasing returns to scale in the intermediation process. Intermediaries...