DO RISK PREMIA PROTECT AGAINST BANKING CRISES?

This paper examines the question to what extent premia for macroeconomic risks inbanking are sufficient to avoid banking crises. We investigate a competitive bankingsystem embedded in an overlapping-generations model subject to repeatedmacroeconomic shocks. We show that even if banks fully incorporate macroeconomicrisks into their pricing of loans, a banking system may enter bankruptcy with probabilityone. A major cause for this default is that risk premia of a competitive banking systemmay become too small if the capital base is low.[...]

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Year of publication:	2008-02-12
Authors:	Gersbach, Hans ; Wenzelburger, Jan
Published in:	London School of Economics and Political Science - Publications Macroeconomic Dynamics, 12 (Supplement 1), 2008, 100–111
Publisher:	London School of Economics and Political Science
Subject:	Regulierung \| Risikoprämie \| Finanzintermediation \| Bankenkrise \| Banking Crisis

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Extent:	254976 bytes 35 p. application/pdf
Type of publication:	Article
Language:	English
Classification:	D41 - Perfect Competition ; E4 - Money and Interest Rates ; G2 - Financial Institutions and Services ; Specific management methods ; Financial theory ; Market research ; Individual Articles ; No country specification
Source:	USB Cologne (business full texts)