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Banks and Markets from an Insurance Perspective

Author

Listed:
  • Amaury Goguel

    (Université Côte d’Azur)

  • Maxence Miéra

    (Univ. Lille, UMR 9221 Lille Economie Management (LEM))

Abstract

This article aims to clarify the analogy between contingent claims in a complete market and banking contracts in a capitalized financial intermediary that combines both deposit and equity. It brings together insurance theory and financial intermediation theory in a synthetic model by focusing on the risk allocation function rather than on a particular kind of institutional arrangement. The model includes both idiosyncratic liquidity risk and aggregate uncertainty on asset return, and it focuses on risk allocation in a perfect information setting from an insurance perspective. This article then highlights that equity contracts are equivalent to state-contingent claims in the aggregate-risk shifting, that deposit contracts are equivalent to type-contingent claims in the idiosyncratic-risk mutualization, and that banks and markets both implement the optimal allocation by simply using different mechanisms.

Suggested Citation

  • Amaury Goguel & Maxence Miéra, 2023. "Banks and Markets from an Insurance Perspective," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(4), pages 943-957, December.
    • Handle: RePEc:spr:jqecon:v:21:y:2023:i:4:d:10.1007_s40953-023-00365-8
    DOI: 10.1007/s40953-023-00365-8
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    References listed on IDEAS

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    Keywords

    Banks; Markets; Insurance;
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