Bank distress and the borrowers' productivity
Keiichiro Kobayashi and
Additional contact information
Noriyuki Yanagawa: Faculty of Economics, University of Toyama
No CARF-F-111, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo
In this paper, we propose a theoretical model in which a banking crisis (or bank distress) causes declines in the aggregate productivity. When borrowing firms need additional bank loans to continue their businesses, a high probability of bank failure discourages ex ante investments (i.e., "specialization") by the firms that enhance their productivity. In a general equilibrium setting, we also show that there may be multiple equilibria, in one of which bank distress continues and the borrowers' productivity is low, and in the other equilibrium, banks are healthy and the borrowers' productivity is high. We show that the bank capital requirement may be effective to eliminate the bad equilibrium and may lead the economy to the good equilibrium in which the productivity of borrowing firms and the aggregate output are both high and the probability of bank failure is low.
Pages: 23 pages
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Working Paper: Bank Distress and the Borrowers' Productivity (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf111
Access Statistics for this paper
More papers in CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by ().