Financial intermediation and the creation of macroeconomic risks
We examine financial intermediation when banks can offer deposit or loan contracts contingent on macroeconomic shocks. We show that the risk allocation is efficient if there is no workout of banking crises. In this case, banks will shift part of the risk to depositors. In contrast, under a workout o...
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| Main Author: | |
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| Format: | Book/Monograph Working Paper |
| Language: | English |
| Published: |
München
CESifo
2002
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| Series: | CESifo Working Paper Category 6: Monetary Policy and International Finance
695 |
| In: |
CESifo working papers (695)
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| Subjects: | |
| Online Access: | Resolving-System, Volltext: http://hdl.handle.net/10419/76099 Verlag, Volltext: http://www.cesifo-group.de/ifoHome/publications/working-papers/CESifoWP/CESifoWPdetails?wp_id=14560462 
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| Author Notes: | Hans Gersbach |
| Summary: | We examine financial intermediation when banks can offer deposit or loan contracts contingent on macroeconomic shocks. We show that the risk allocation is efficient if there is no workout of banking crises. In this case, banks will shift part of the risk to depositors. In contrast, under a workout of banking crises, depositors receive non-contingent contracts with high interest rates while entrepreneurs obtain loan contracts that demand a high repayment in good times and little in bad times. As a result, the present generation overinvests and banks create large macroeconomic risks for future generations, even if the underlying risk is small or zero. This provides a new justification for capital requirements. |
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| Physical Description: | Online Resource |
| Format: | Systemvoraussetzungen: PDF Reader. |