Bank Overleverage and Macroeconomic Fragility
This paper develops a dynamic general equilibrium model that explicitly includes a banking sector with a maturity mismatch. We demonstrate that, despite the perfect competition in the banking sector, rational banks take on excessive risks systemically, resulting in overleverage and inefficiently high crisis probabilities. The model accounts for the banks' rational over-optimism regarding future capital prices which arises from pecuniary externalities on their own solvency. Using the model as an example, we introduce MSR (marginal systemic risk) as a general measure to assess the macroeconomic exposure to systemic risks.
|Date of creation:||Jul 2011|
|Contact details of provider:|| Postal: 2-1-1 Nihonbashi, Hongoku-cho, Chuo-ku, Tokyo 103|
Web page: http://www.imes.boj.or.jp/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Césaire Meh & Kevin Moran, 2008.
"The Role of Bank Capital in the Propagation of Shocks,"
Staff Working Papers
08-36, Bank of Canada.
- Meh, Césaire A. & Moran, Kevin, 2010. "The role of bank capital in the propagation of shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 555-576, March.
- Olivier Jeanne & Anton Korinek, 2010.
"Managing Credit Booms and Busts: A Pigouvian Taxation Approach,"
Working Paper Series
WP10-12, Peterson Institute for International Economics.
- Olivier Jeanne & Anton Korinek, 2010. "Managing Credit Booms and Busts: A Pigouvian Taxation Approach," NBER Working Papers 16377, National Bureau of Economic Research, Inc.
- Jeanne, O. & Korinek, A., 2010. "Managing Credit Booms and Busts : A Pigouvian Taxation Approach," Discussion Paper 2010-108S, Tilburg University, Center for Economic Research.
- Jeanne, Olivier & Korinek, Anton, 2010. "Managing Credit Booms and Busts: A Pigouvian Taxation Approach," CEPR Discussion Papers 8015, C.E.P.R. Discussion Papers.
- Ryo Kato & Takayuki Tsuruga, 2011. "The Safer, the Riskier:A Model of Bank Leverage and Financial Instability," Discussion papers e-10-014, Graduate School of Economics Project Center, Kyoto University.
- Charles T. Carlstrom & Timothy S. Fuerst, 1996.
"Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis,"
9602, Federal Reserve Bank of Cleveland.
- Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
- Guido Lorenzoni, 2007.
"Inefficient Credit Booms,"
NBER Working Papers
13639, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009.
"This Time Is Different: Eight Centuries of Financial Folly,"
Princeton University Press,
edition 1, number 8973.
- Angeloni, Ignazio & Faia, Ester, 2013. "Capital regulation and monetary policy with fragile banks," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 311-324.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2008.
"Banking Crises: An Equal Opportunity Menace,"
NBER Working Papers
14587, National Bureau of Economic Research, Inc.
- Robert J. Barro, 2009.
"Rare Disasters, Asset Prices, and Welfare Costs,"
American Economic Review,
American Economic Association, vol. 99(1), pages 243-64, March.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-419, June.
- Douglas W. Diamond & Raghuram G. Rajan, 2012.
"Illiquid Banks, Financial Stability, and Interest Rate Policy,"
Journal of Political Economy,
University of Chicago Press, vol. 120(3), pages 552-591.
- Douglas W. Diamond & Raghuram Rajan, 2011. "Illiquid Banks, Financial Stability, and Interest Rate Policy," NBER Working Papers 16994, National Bureau of Economic Research, Inc.
- Ryo Kato, 2004.
"Liquidity, Infinite Horizons and Macroeconomic Fluctuations,"
Econometric Society 2004 Far Eastern Meetings
622, Econometric Society.
- Kato, Ryo, 2006. "Liquidity, infinite horizons and macroeconomic fluctuations," European Economic Review, Elsevier, vol. 50(5), pages 1105-1130, July.
- Naohisa Hirakata & Nao Sudo & Kozo Ueda, 9/11. "Chained Credit Contracts and Financial Accelerators," IMES Discussion Paper Series 09-E-30, Institute for Monetary and Economic Studies, Bank of Japan.
- Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
- Javier Bianchi, 2010. "Credit Externalities: Macroeconomic Effects and Policy Implications," American Economic Review, American Economic Association, vol. 100(2), pages 398-402, May.
- Enrique G. Mendoza & Javier Bianchi, 2010.
"Overborrowing, financial crises and ‘macro-prudential’ taxes,"
Federal Reserve Bank of San Francisco, issue Oct.
- Javier Bianchi & Enrique G. Mendoza, 2010. "Overborrowing, Financial Crises and 'Macro-prudential' Taxes," NBER Working Papers 16091, National Bureau of Economic Research, Inc.
- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
- Jeremy C. Stein, 2012. "Monetary Policy as Financial Stability Regulation," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 57-95.
When requesting a correction, please mention this item's handle: RePEc:ime:imedps:11-e-15. 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: (Kinken)
If references are entirely missing, you can add them using this form.