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On the Stability of Different Financial Systems

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  • Fecht, Falko

Abstract

An economy in which deposit-taking banks of a Diamond/ Dybvig style and an asset market coexist is modelled. Firstly, within this framework we characterize distinct financial systems depending on the fraction of households with direct investment opportunities that are less efficient than those available to banks. With this fraction comparatively low, the evolving financial system can be interpreted as market-oriented. In this system, banks only provide efficient investment opportunities to households with inferior investment alternatives. Banks are not active in the secondary financial market nor do they provide any liquidity insurance to their depositors. Households participate to a large extent in the primary as well as in the secondary financial markets. In the other case of a relatively high fraction of households with inefficient direct investment opportunities, a bank-dominated financial system arises, in which banks provide liquidity transformation, are active in secondary financial markets and are the only player in primary markets, while households only participate in secondary financial markets. Secondly, we analyze the effect a run on a single bank has on the entire financial system. Interestingly, we can show that a bank run on a single bank causes contagion via the financial market neither in market-oriented nor in extremely bank-dominated financial systems. But in only moderately bank-dominated (or hybrid) financial systems fire sales of long-term financial claims by a distressed bank cause a sudden drop in asset prices that precipitates other banks into crisis. -- Im vorliegenden Papier wird eine Ökonomie modelliert, in der Diamond/ Dybvig- Banken neben einem Finanzmarkt koexistieren. Innerhalb dieses Ansatzes lässt sich zunächst zeigen, dass zwei sehr unterschiedliche Finanzsysteme entstehen, je nach dem wie hoch der Anteil von solchen Haushalten in der Ökonomie ist, die im Vergleich zu Banken weniger effiziente Anlagemöglichkeiten am Finanzmarkt haben. Ist der Anteil dieser Haushalte vergleichsweise gering, so entsteht ein Finanzsystem, das sich als markt-orientiertes auffassen lässt. In diesem System beschränkt sich die Funktion von Banken darauf, auch den Haushalten mit weniger rentablen Direktanlagemöglichkeiten eine effiziente Investitionsalternative zu bieten. Während hier Banken nicht am sekundären Finanzmarkt partizipieren, handeln private Haushalte sowohl am Primär- als auch am Sekundärmarkt. Einlageverträge von Banken bieten in diesem Finanzsystem keine Liquiditätsversicherung. Ist hingegen der Anteil der Haushalte mit wenig effizienten Direktanlagemöglichkeiten vergleichsweise hoch, so bildet sich eine bank-dominiertes Finanzsystem heraus, in dem Bankeinlagen sehr wohl eine Liquiditätsversicherung darstellen. In diesem Finanzsystem sind nur die Banken am Primärmarkt aktiv und partizipieren darüber hinaus auch am Sekundärmarkt. Sämtliche private Haushalte handeln hingegen nur am Sekundärmarkt. In einem zweiten Schritt wird der Effekt untersucht, der vom Zusammenbruch einer Bank auf das gesamte Finanzsystem ausgeht. Interessanterweise zeigt sich hier, dass ein Run auf eine Bank weder in einem markt-orientierten noch in einem stark bank-dominierten Finanzsystem zu Ansteckungseffekten über den Finanzmarkt führt. Nur in schwach bank-dominierten (oder hybriden) Finanzsystemen verursachen die Notverkäufe von langfristigen Finanztiteln durch eine illiquide Bank einen Preisverfall dieser Anlagen, der weitere Banken zusammenbrechen lässt.

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2003,10.

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Date of creation: 2003
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Handle: RePEc:zbw:bubdp1:4207

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  1. Gabriele Galati & Kostas Tsatsaronis, 2001. "The impact of the euro on Europe's financial markets," BIS Working Papers 100, Bank for International Settlements.
  2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
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  5. Franklin Allen & Douglas Gale, 2001. "Comparative Financial Systems: A Survey," Center for Financial Institutions Working Papers 01-15, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  8. Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
  9. Douglas W. Diamond, . "Liquidity, Banks and Markets," CRSP working papers 326, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  10. Franklin Allen & Douglas Gale, 1994. "A welfare comparison of intermediaries and financial markets in Germany and the U.S," Working Papers 95-3, Federal Reserve Bank of Philadelphia.
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  12. Franklin Allen & Douglas Gale, 1998. "Financial Contagion Journal of Political Economy," Center for Financial Institutions Working Papers 98-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
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