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The volume of credit extended by a bank can be an informative signal of its abilities in loan selection and management. It is shown that, under asymmetric information, banks may therefore rationally lend more than they would otherwise in order to demonstrate their quality, thus negatively affecting financial system soundness. Small shifts in technology and uncertainty associated with new technology may lead to large jumps in equilibrium outcomes. Prudential measures and supervision are therefore warranted.
Bank loans --- Econometric models. --- Bank credit --- Loans --- Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Innovation --- Research and Development --- Technological Change --- Intellectual Property Rights: General --- Monetary economics --- Banking --- Finance --- Technology --- general issues --- Credit --- Banks and banking --- United States
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This paper estimates the magnitude of key effects on the real economy from financial sector stress. We focus on the short-run feedback effect from market-based indicators of financial sector risk to the real economy through the credit channel, and estimate this effect on an economy-wide (macro) level, as well as on the level of individual large banks. Both estimates yield significant feedback effects of substantial magnitude. The estimates are consistent with other work in this area. Our results suggest that prudential supervision could be enhanced by taking into account the feedback effects of financial instability in the real economy. We also propose a way to integrate feedback effects into stress tests in order to improve realism and accuracy or macroeconomic stress scenarios, as well as a metric to interpret stress testing results.
Financial risk. --- International business enterprises -- Management. --- Investments, Foreign -- Political aspects -- Evaluation. --- Risk management. --- Management --- Business & Economics --- Management Styles & Communication --- Economic development. --- Business risk (Finance) --- Money risk (Finance) --- Development, Economic --- Economic growth --- Growth, Economic --- Risk --- Economic policy --- Economics --- Statics and dynamics (Social sciences) --- Development economics --- Resource curse --- Banks and Banking --- Finance: General --- Money and Monetary Policy --- Industries: Financial Services --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial Institutions and Services: General --- General Financial Markets: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary economics --- Finance --- Banking --- Credit --- Financial sector --- Financial sector risk --- Bank credit --- Financial services industry --- Financial risk management --- Banks and banking --- Switzerland
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This paper derives an equilibrium for a competitive multi-stage game in which an agents' current action influences his probability of survival into the next round of play. This is directly relevant in banking, where a banks' current lending and pricing decisions determines its future probability of default. In technical terms, our innovation is to consider a multi-stage game with endogenous discounting. An equilibrium for such a multi-stage game with endogenous discounting has not been derived before in the literature.
Game theory. --- Competition --- Equilibrium (Economics) --- Mathematical models. --- Disequilibrium (Economics) --- Economic equilibrium --- General equilibrium (Economics) --- Partial equilibrium (Economics) --- Games, Theory of --- Theory of games --- DGE (Economics) --- DSGE (Economics) --- Dynamic stochastic general equilibrium (Economics) --- SDGE (Economic theory) --- Economics --- Statics and dynamics (Social sciences) --- Mathematical models --- Mathematics --- Banks and Banking --- Finance: General --- Macroeconomics --- Environmental Economics --- Price Level --- Inflation --- Deflation --- General Financial Markets: General (includes Measurement and Data) --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Environmental Economics: General --- Finance --- Banking --- Environmental economics --- Asset prices --- Environment --- Prices --- Banks and banking --- Environmental sciences
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This paper assesses changes in synchronization of real activity and financial market integration in Western Europe and evaluates their implications for financial stability. We find increased synchronization of real activity since the early 1980s and increased equity markets integration since the early 1990s. We also find that measures of systemic risk at large European financial institutions have not declined during the period 1990-2004 and that bank systemic risk profiles have converged. At the same time, the sensitivity of bank and insurance systemic risk measures to common real and financial shocks has increased in most countries. Overall, these results suggest that the integration process does not necessarily entail an unambiguously positive effect on financial stability.
Fiscal policy --- Finance --- Econometric models. --- Europe --- Economic integration --- Economic conditions --- Funding --- Funds --- Tax policy --- Taxation --- Government policy --- Council of Europe countries --- Economics --- Currency question --- Economic policy --- Finance, Public --- Eastern Hemisphere --- Eurasia --- Banks and Banking --- Finance: General --- Industries: Financial Services --- Macroeconomics --- Financial Aspects of Economic Integration --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Insurance --- Insurance Companies --- Actuarial Studies --- General Financial Markets: Government Policy and Regulation --- General Financial Markets: General (includes Measurement and Data) --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Personal Income, Wealth, and Their Distributions --- Banking --- Systemic risk --- Stock markets --- Financial integration --- Insurance companies --- Financial sector policy and analysis --- Financial markets --- Financial institutions --- Personal income --- National accounts --- Financial risk management --- Stock exchanges --- Banks and banking --- International finance --- Income --- Italy
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Using a simple model of two-sided markets, we show that, in the social optimum, platform pricing leads to an inherent cost recovery problem. This result is driven by the positive externality of participation that users on either side of the market exert on the opposite side. The contribution of this positive externality to social welfare leads the social planner to increase users' participation by setting prices at both sides of the market such that the total price is below marginal cost. This causes operational losses for the platform. Our result holds for both interior pricing and skewed pricing in two-sided markets.
Competition, International. --- Electronic books. -- local. --- Markets. --- Prices. --- Finance: General --- Macroeconomics --- Economic Theory --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Market Structure, Firm Strategy, and Market Performance: General --- Monopolization --- Horizontal Anticompetitive Practices --- Price Level --- Inflation --- Deflation --- Agriculture: Aggregate Supply and Demand Analysis --- Prices --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Economic theory & philosophy --- Finance --- Price structures --- Demand elasticity --- Price elasticity --- Payment systems --- Elasticity --- Economics --- Clearinghouses --- Banking
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The Long Shadow of the Global Financial Crisis: Public Interventions in the Financial Sector.
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This SDN explores how demographic changes have affected and will affect public and private sector savings, highlighting the interaction between pension systems, labor markets, and demographic variables.
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