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Competition vs. Stability: Oligopolistic Banking System with Run Risk
Author:
Mr. Damien Capelle
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Series:
IMF Working Papers
Volume/Issue:
Volume 2021: Issue 102
Language:
English
Publication Date:
23 Apr 2021
DOI:
https://doi.org/10.5089/9781513582313.001
ISBN:
9781513582313
ISSN:
1018-5941
Pages:
74
Keywords:
franchise value; recapitalization channel; net worth; price-drop channel; real asset; Asset prices; Competition; Shadow banking; Investment banking; Bank deposits; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper develops a model where large financial intermediaries subject to systemic runs internalize the effect of their leverage on aggregate risk, returns and asset prices. Near the steady-state, they restrict leverage to avoid the risk of a run which gives rise to an accelerator effect. For large adverse shocks, the system enters a zone with high leverage and possibly runs. The length of time the system remains in this zone depends on the degree of concentration through a franchise value, price-drop and recapitalization channels. The speed of entry of new banks after a collapse has a stabilizing effect.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2021: Issue 102