Banks and Markets from an Insurance Perspective

Amaury Goguel and Maxence Miéra ()
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Amaury Goguel: SKEMA Business School
Maxence Miéra: UA - Université d'Artois, LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique

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Abstract: This article aims to clarify the analogy between contingent claims in a complete market and banking contracts in a capitalized financial intermediary that combines both deposit and equity. It brings together insurance theory and financial intermediation theory in a synthetic model by focusing on the risk allocation function rather than on a particular kind of institutional arrangement. The model includes both idiosyncratic liquidity risk and aggregate uncertainty on asset return, and it focuses on risk allocation in a perfect information setting from an insurance perspective. This article then highlights that equity contracts are equivalent to state-contingent claims in the aggregate-risk shifting, that deposit contracts are equivalent to type-contingent claims in the idiosyncratic-risk mutualization, and that banks and markets both implement the optimal allocation by simply using different mechanisms.

Keywords: Banks; Markets; Insurance (search for similar items in EconPapers)
Date: 2023-08-05
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Published in Journal of Quantitative Economics, 2023, 21, pp.943-957. ⟨10.1007/s40953-023-00365-8⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04184527

DOI: 10.1007/s40953-023-00365-8

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