EconPapers    
Economics at your fingertips  
 

Default, Bailouts and the Vertical Structure of Financial Intermediaries

Tatiana Damjanovic (), Vladislav Damjanovic () and Charles Nolan ()

No 2019_04, Working Papers from Durham University Business School

Abstract: Should we break up banks and limit bailouts? We study vertical integration of deposit-taking institutions and those investing in risky equity. Integration, by eliminating a credit spread, increases output but entails larger, more frequent bailouts. Bailouts of leveraged institutions boost economic activity but are costly. The optimal structure of intermediaries depends largely on the efficiency of government intervention, the competitiveness of the Önancial sector and shocks hitting the economy. Separated institutions are preferred when profit margins are small, financial shocks systemic and volatile, and bailouts costly. For a baseline calibration, universal banks are typically preferred.

Keywords: Financial intermediation in DSGE models; Vertical structure of financial intermediary; separation of retail and investment banks; bailouts; trade-off between financial stability and efficiency. (search for similar items in EconPapers)
JEL-codes: E13 E44 G11 G24 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-mac
Date: 2019-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://www.dur.ac.uk/resources/business/research/EconWP19_04.pdf main text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dur:durham:2019_04

Access Statistics for this paper

More papers in Working Papers from Durham University Business School Durham University Business School, Mill Hill Lane, Durham DH1 3LB, England. Contact information at EDIRC.
Bibliographic data for series maintained by IT Office ().

 
Page updated 2019-12-09
Handle: RePEc:dur:durham:2019_04