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Inequality and financial fragility

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  • Mitkov, Yuliyan

Abstract

I study how the distribution of wealth influences the government’s response to systemic banking crises and shapes financial fragility. Distributional concerns tend to make full government guarantees of deposits credible for relatively poor individuals, but not for wealthier individuals. As a result, wealthier individuals have a stronger incentive to panic and, in equilibrium, the institutions in which they invest are endogenously more likely to experience runs and receive partial bailouts, even under utilitarian government. Moreover, the shape of the wealth distribution affects the level of financial fragility. Recognizing this fact may alter the government’s desire to redistribute wealth ex ante.

Suggested Citation

  • Mitkov, Yuliyan, 2020. "Inequality and financial fragility," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 233-248.
    • Handle: RePEc:eee:moneco:v:115:y:2020:i:c:p:233-248
    DOI: 10.1016/j.jmoneco.2019.08.004
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    4. Park, Sungmin & Kim, Young-Han, 2023. "The impact of macroprudential policy on inequality and implications for inclusive financial stability," Journal of Banking & Finance, Elsevier, vol. 146(C).

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    More about this item

    Keywords

    Inequality; Financial fragility; Bailouts; Limited commitment;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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