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On Dividend Restrictions and the Collapse of the Interbank Market

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  • Dimitrios Tsomocos

    ()

  • Charles Goodhart

    ()

  • M.U. Peiris
  • Alexandros Vardoulakis

Abstract

Until recently, financial services regulation remained largely segmented along national lines. The integration of financial markets, however, calls for a systematic and coherent approach to regulation. This paper studies the effect of market based regulation on the proper functioning of the interbank market. Specifically, we argue that restrictions on the payout of dividends by banks can reduce their expected default on (interbank) loans, stimulate trade in this market and improve the welfare of consumers.

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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp648.pdf
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Bibliographic Info

Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp648.

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Date of creation: Feb 2010
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Handle: RePEc:fmg:fmgdps:dp648

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  1. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2005. "Default and Punishment in General Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 1-37, 01.
  2. Charles Goodhart & Pojanart Sunirand & Dimitrios Tsomocos, 2006. "A model to analyse financial fragility," Economic Theory, Springer, vol. 27(1), pages 107-142, 01.
  3. Eva Catarineu-Rabell & Patricia Jackson & Dimitrios P. Tsomocos, 2002. "Procyclicality and the New Basel Accord: banks' choice of loan rating system," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
  4. Chiara Pederzoli & Costanza Torricelli, 2008. "Rating systems, procyclicalilty and Basel II: an evaluation in a general equilibrium framework," Economics Series Working Papers 2008fe27, University of Oxford, Department of Economics.
  5. Charles Goodhart & Pojanart Sunirand & Dimitrios P. Tsomocos, 2004. "A risk assessment model for banks," LSE Research Online Documents on Economics 24750, London School of Economics and Political Science, LSE Library.
  6. Tsomocos, Dimitrios P., 2003. "Equilibrium analysis, banking and financial instability," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 619-655, July.
  7. Charles A.E. Goodhart & Pojanart Sunirand & Dimitrios P. Tsomocos, 2004. "A Time Series Analysis of Financial Fragility in the UK Banking System," OFRC Working Papers Series 2004fe18, Oxford Financial Research Centre.
  8. Charles A.E. Goodhart & Pojanart Sunirand & Dimitrios P. Tsomocos, 2004. "A Model to Analyse Financial Fragility: Applications," OFRC Working Papers Series 2004fe05, Oxford Financial Research Centre.
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Cited by:
  1. Gabriele Galati & Richhild Moessner, 2011. "Macroprudential policy - a literature review," BIS Working Papers 337, Bank for International Settlements.
  2. Admati, Anat R. & DeMarzo, Peter M. & Hellwig, Martin F. & Pfleiderer, Paul, 2010. "Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity Is Not Expensive," Research Papers 2065, Stanford University, Graduate School of Business.
  3. Benjamin M. Tabak & Daniel O. Cajueiro & Dimas M. Fazio, 2010. "Financial Fragility in a General Equilibrium Model: the Brazilian case," Working Papers Series 229, Central Bank of Brazil, Research Department.
  4. M. Peiris & Alexandros Vardoulakis, 2013. "Savings and default," Economic Theory, Springer, vol. 54(1), pages 153-180, September.
  5. Anat R. Admati & Peter M. DeMarzo & Martin F. Hellwig & Paul Pfleiderer, 2013. "Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Socially Expensive," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2013_23, Max Planck Institute for Research on Collective Goods.

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