The Governance of Perpetual Financial Intermediaries
AbstractAbstract: 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 InfoPaper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series with number 12-10.
Date of creation: 2012
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Financial Intermediation; Overlapping Generations;
Other versions of this item:
- PICARD, Pierre & RUSLI, Ridwan D., 2012. "State owned firms: private debt, cost revelation and welfare," CORE Discussion Papers 2012047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-12 (All new papers)
- NEP-BEC-2013-01-12 (Business Economics)
- NEP-CTA-2013-01-12 (Contract Theory & Applications)
- NEP-REG-2013-01-12 (Regulation)
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