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A Macroeconomic Model of Endogenous Systemic Risk Taking

  • Martinez-Miera, David
  • Suarez, Javier

We analyze banks' systemic risk taking in a simple dynamic general equilibrium model. Banks collect funds from savers and make loans to firms. Banks are owned by risk-neutral bankers who provide the equity needed to comply with capital requirements. Bankers decide their (unobservable) exposure to systemic shocks by trading off risk-shifting gains with the value of preserving their capital after a systemic shock. Capital requirements reduce credit and output in

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9134.

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Date of creation: Sep 2012
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Handle: RePEc:cpr:ceprdp:9134
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  9. David Martinez-Miera & Rafael Repullo, 2010. "Does Competition Reduce the Risk of Bank Failure?," Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3638-3664, October.
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  18. Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
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