IDEAS home Printed from https://ideas.repec.org/p/bof/bofrdp/2016_012.html
   My bibliography  Save this paper

Saving Wall Street or main street

Author

Listed:
  • Haavio, Markus
  • Ripatti, Antti
  • Takalo, Tuomas

Abstract

​We build a dynamic stochastic general equilibrium model, where the balance sheets of both banks and non-financial firms play a role in macro-financial linkages. We show that in equilibrium bank capital tends to be scarce, compared with firm capital. We study public funding of banks and firms in times of crisis. Government capital injections can be useful as a shock cushion, but they distort incentives. Small capital injections benefit banks more than firms but the relative benefit is declining in the injection size. Government should first recapitalize banks, and if resources are large enough, lend to firms too.

Suggested Citation

  • Haavio, Markus & Ripatti, Antti & Takalo, Tuomas, 2016. "Saving Wall Street or main street," Research Discussion Papers 12/2016, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:2016_012
    as

    Download full text from publisher

    File URL: https://helda.helsinki.fi/bof/bitstream/123456789/14105/1/BoF_DP_1612.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    2. Duchin, Ran & Sosyura, Denis, 2014. "Safer ratios, riskier portfolios: Banks׳ response to government aid," Journal of Financial Economics, Elsevier, vol. 113(1), pages 1-28.
    3. Berger, A.N. & Bouwman, C.H.S. & Kick, T. & Schaeck, K., 2011. "Bank risk taking and liquidity creation following regulatory interventions and capital support," Discussion Paper 2011-088, Tilburg University, Center for Economic Research.
    4. Vasco Cúrdia & Michael Woodford, 2010. "Conventional and unconventional monetary policy," Review, Federal Reserve Bank of St. Louis, issue May, pages 229-264.
    5. Kevin Moran & Cesaire A. Meh & Ian Christensen, 2010. "Bank Leverage Regulation and Macroeconomic Dynamics," 2010 Meeting Papers 757, Society for Economic Dynamics.
    6. Albertazzi, Ugo & Gambacorta, Leonardo, 2009. "Bank profitability and the business cycle," Journal of Financial Stability, Elsevier, vol. 5(4), pages 393-409, December.
    7. Fabian Valencia & Luc Laeven, 2012. "Systemic Banking Crises Database; An Update," IMF Working Papers 12/163, International Monetary Fund.
    8. Faia, Ester, 2010. "Credit risk transfers and the macroeconomy," Working Paper Series 1256, European Central Bank.
    9. Berger, Allen N. & Roman, Raluca, 2015. "Did saving Wall Street really save Main Street : the real effects of TARP on local economic conditions," Research Working Paper RWP 15-13, Federal Reserve Bank of Kansas City.
    10. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
    11. David Aikman & Matthias Paustian, 2006. "Bank capital, asset prices and monetary policy," Bank of England working papers 305, Bank of England.
    12. Acharya, Viral V. & Steffen, Sascha, 2014. "Falling short of expectations? Stress-testing the European banking system," CEPS Papers 8803, Centre for European Policy Studies.
    13. John R. Graham & Mark T. Leary, 2011. "A Review of Empirical Capital Structure Research and Directions for the Future," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 309-345, December.
    14. Li, Lei, 2013. "TARP funds distribution and bank loan supply," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4777-4792.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bof:bofrdp:2016_012. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman). General contact details of provider: http://edirc.repec.org/data/bofgvfi.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.