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The Governance of Perpetual Financial Intermediaries

Author

Listed:
  • Jos van Bommel
  • Jose Penalva

    (LSF)

Abstract

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.

Suggested Citation

  • Jos van Bommel & Jose Penalva, 2012. "The Governance of Perpetual Financial Intermediaries," LSF Research Working Paper Series 12-10, Luxembourg School of Finance, University of Luxembourg.
    • Handle: RePEc:crf:wpaper:12-10
    as

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    More about this item

    Keywords

    Financial Intermediation; Overlapping Generations;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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