Competition vs. Stability: Oligopolistic Banking System with Run Risk

Damien Capelle

No 2021/102, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: franchise value; recapitalization channel; net worth; price-drop channel; real asset; Asset prices; Competition; Shadow banking; Investment banking; Bank deposits; Global (search for similar items in EconPapers)
Pages: 74
Date: 2021-04-23
New Economics Papers: this item is included in nep-com, nep-cwa and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2021/102

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