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A Macroeconomic Model of Endogenous Systemic Risk Taking

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  • Martinez-Miera, David
  • Suarez, Javier

Abstract

We analyze banks' systemic risk taking in a simple dynamic general equilibrium model. Banks collect funds from savers and make loans to firms. Banks are owned by risk-neutral bankers who provide the equity needed to comply with capital requirements. Bankers decide their (unobservable) exposure to systemic shocks by trading off risk-shifting gains with the value of preserving their capital after a systemic shock. Capital requirements reduce credit and output in

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9134.

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Date of creation: Sep 2012
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Handle: RePEc:cpr:ceprdp:9134

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Related research

Keywords: Capital requirements; Credit cycles; Financial crises; Macroprudential policies; Risk shifting; Systemic risk;

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Cited by:
  1. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2011. "When credit bites back: leverage, business cycles, and crises," Working Paper Series 2011-27, Federal Reserve Bank of San Francisco.
  2. Busse, Marc & Dacorogna, Michel & Kratz, Marie, 2013. "The Impact of Systemic Risk on the Diversification Benefits of a Risk Portfolio," ESSEC Working Papers WP1321, ESSEC Research Center, ESSEC Business School.
  3. Hartmann, Philipp & Hubrich, Kirstin & Kremer, Manfred & Tetlow, Robert J., 2013. "Melting down: Systemic financial instability and the macroeconomy," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80487, Verein für Socialpolitik / German Economic Association.
  4. Fabrice Collard & Harris Dellas & Behzad Diba & Olivier Loisel, 2012. "Optimal Monetary and Prudential Policies," Working Papers 2012-34, Centre de Recherche en Economie et Statistique.
  5. Koetter, Michael, 2013. "Market structure and competition in German banking: Modules I and IV," Working Papers 06/2013, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
  6. Gete, Pedro & Tiernan, Natalie, 2014. "Lending Standards and Countercyclical Capital Requirements under Imperfect Information," MPRA Paper 54486, University Library of Munich, Germany.
  7. Saki Bigio, 2012. "Financial Risk Capacity," 2012 Meeting Papers 97, Society for Economic Dynamics.
  8. Goodhart, Charles, 2013. "Ratio controls need reconsideration," Journal of Financial Stability, Elsevier, vol. 9(3), pages 445-450.

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