Advanced Search
MyIDEAS: Login to save this paper or follow this series

Do Risk Premia Protect from Banking Crises

Contents:

Author Info

  • Hans Gersbach
  • Jan Wenzelburger

Abstract

This paper studies the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping generation model subject to repeated macroeconomic shocks. We show that even if banks fully incorporate macroeconomic risks in their pricing of loans, a banking system may enter bankruptcy with probability one. A major cause for this default is that risk premia of a competitive banking system may become too small if the capital base is low.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://bieson.ub.uni-bielefeld.de/volltexte/2004/561/pdf/riskPrem.pdf
Download Restriction: no

Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000356.

as in new window
Length:
Date of creation: 01 Sep 2004
Date of revision:
Handle: RePEc:cla:levrem:122247000000000356

Contact details of provider:
Web page: http://www.dklevine.com/

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Hyun Song Shin & Stephen Morris, 2001. "Coordination Risk and the Price of Debt," FMG Discussion Papers, Financial Markets Group dp373, Financial Markets Group.
  2. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
  3. Allen, Franklin & Gale, Douglas, 1997. "Financial Markets, Intermediaries, and Intertemporal Smoothing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(3), pages 523-46, June.
  4. Ricardo Caballero & Arvind Krishnamurthy, 1999. "Emerging Market Crises: An Asset Markets Perspective," Working papers 99-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Hyun Song Shin, 2001. "Disclosures and asset returns," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 25044, London School of Economics and Political Science, LSE Library.
  6. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
  7. Chang, R. & Velasco, A., 1998. "Financial Crises in Emerging Markets: A Canonical Model," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-21, C.V. Starr Center for Applied Economics, New York University.
  8. John H. Boyd & Edward C. Prescott, 1985. "Financial intermediary-coalitions," Staff Report, Federal Reserve Bank of Minneapolis 87, Federal Reserve Bank of Minneapolis.
  9. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 14-31, March.
  10. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1521-1534, December.
  11. Arvind Krishnamurthy & Ricardo J. Caballero, 1999. "Emerging Markets Crisis," IMF Working Papers 99/129, International Monetary Fund.
  12. Franklin Allen & Douglas Gale, 2004. "Financial Intermediaries and Markets," Econometrica, Econometric Society, Econometric Society, vol. 72(4), pages 1023-1061, 07.
  13. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
  14. Kiminori Matsuyama, 2002. "Good and Bad Investment: An Inquiry into the Causes of Credit Cycles," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-172, CIRJE, Faculty of Economics, University of Tokyo.
  15. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(3), pages 401-19, June.
  16. Stacey L. Schreft & Bruce D. Smith, 1994. "Money, banking, and capital formation," Working Paper, Federal Reserve Bank of Richmond 94-05, Federal Reserve Bank of Richmond.
  17. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 473-500, June.
  18. Bhattacharya, Sudipto & Boot, Arnoud W A & Thakor, Anjan V, 1998. "The Economics of Bank Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(4), pages 745-70, November.
  19. Gersbach, Hans & Uhlig, Harald, 2006. "Debt contracts and collapse as competition phenomena," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 15(4), pages 556-574, October.
  20. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc.
  21. Blum, Jurg & Hellwig, Martin, 1995. "The macroeconomic implications of capital adequacy requirements for banks," European Economic Review, Elsevier, Elsevier, vol. 39(3-4), pages 739-749, April.
  22. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 3(1), pages 2-50, October.
  23. Gerard Caprio & Patrick Honohan, 1999. "Restoring Banking Stability: Beyond Supervised Capital Requirements," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(4), pages 43-64, Fall.
  24. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
  25. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
  26. Uhlig, H., 1995. "Transition and Financial Collapse," Discussion Paper, Tilburg University, Center for Economic Research 1995-66, Tilburg University, Center for Economic Research.
  27. Harald Uhlig, 1996. "A law of large numbers for large economies (*)," Economic Theory, Springer, Springer, vol. 8(1), pages 41-50.
  28. Kiminori Matsuyama, 2004. "Financial Market Globalization, Symmetry-Breaking, and Endogenous Inequality of Nations," Econometrica, Econometric Society, Econometric Society, vol. 72(3), pages 853-884, 05.
  29. Alos-Ferrer, C., 1998. "Individual Randomness in Economic Models with a Continuum Agents," Papers, Washington St. Louis - School of Business and Political Economy 9807, Washington St. Louis - School of Business and Political Economy.
  30. Yehning Chen, 1999. "Banking Panics: The Role of the First-Come, First-Served Rule and Information Externalities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(5), pages 946-968, October.
  31. Greenwald, Bruce C & Stiglitz, Joseph E, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 77-114, February.
  32. Hellwig, Christian, 2002. "Public Information, Private Information, and the Multiplicity of Equilibria in Coordination Games," Journal of Economic Theory, Elsevier, Elsevier, vol. 107(2), pages 191-222, December.
  33. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  34. Hans Gersbach & Jan Wenzelburger, 2001. "The Dynamics of Deposit Insurance and the Consumption Trap," CESifo Working Paper Series 509, CESifo Group Munich.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jan Wenzelburger & Hans Gersbach, 2007. "Sophistication in Risk Management, Bank Equity, and Stability," Keele Economics Research Papers, Centre for Economic Research, Keele University KERP 2007/08, Centre for Economic Research, Keele University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cla:levrem:122247000000000356. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.