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The Governance of Perpetual Financial Intermediaries

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  • Jos van Bommel

    ()

  • Jose Penalva

    (LSF)

Abstract

Abstract: In this paper we investigate the risk sharing potential of financial intermediaries in an overlapping generations economy. We find that the intermediaries allocations are constrained by the temptation of the living to liquidate their intermediary s assets and share the proceeds amongst themselves. We characterize the characterize this constraint set, and show that only intermediaries that can avoid side trading and the rolling over of deposits can improve on the market allocation. Furthermore, intermediaries may not achieve the constrained optimal allocation because the living are not willing to build a sufficiently large asset buffer.

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Bibliographic Info

Paper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series with number 12-10.

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Date of creation: 2012
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Handle: RePEc:luc:wpaper:12-10

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Keywords: Financial Intermediation; Overlapping Generations;

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