Wealth inequality and bank failure: A cross-country simulation analysis

Joseph Tzur and Arie Jacobi

Journal of International Financial Markets, Institutions and Money, 2019, vol. 60, issue C, 193-210

Abstract: Assuming potential borrowers arrive randomly and sequentially at the bank, and the fair value assets change with the economy's state, we show, by extensive simulation, that in countries with a high level of wealth inequality, an increment in the upper bound of the wealth distribution may increase the probability of bank failure; Also, the average total amount of loans and the average net income of the bank increase. If wealth inequality is low and a bank has low screening capacity, then the probability of bank failure increases. This is enhanced when the bank adopts a higher level of perceived risk.

Keywords: Wealth inequality; Screening capacity; Stress testing; Power law distribution (search for similar items in EconPapers)
JEL-codes: D31 G21 G28 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:60:y:2019:i:c:p:193-210

DOI: 10.1016/j.intfin.2018.12.017

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