Financial Intermediary Capital

Adriano Rampini and S Viswanathan ()

No 12800, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households, that is, have a collateralization advantage. Intermediaries require capital as they have to finance the additional amount that they can lend out of their own net worth. The net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity, such as investment, and financing. The accumulation of net worth of intermediaries is slow relative to that of the corporate sector. The model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch, namely, their severity, their protractedness, and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns. The model captures the tentative and halting nature of recoveries from crises.

Keywords: Collateral; Financial intermediation; Financial constraints; investment; Financial crises (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 G32 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-cfn, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Financial Intermediary Capital (2019)
Working Paper: Financial Intermediary Capital (2017)
Working Paper: Financial Intermediary Capital (2010)
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