Financial Intermediary Capital

Adriano Rampini and S Viswanathan ()

No 23302, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households, that is, have a collateralization advantage. Intermediaries require capital as they can borrow against their loans only to the extent that households themselves can collateralize the assets backing these loans. The net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity, such as investment, and financing. The accumulation of net worth of intermediaries is slow relative to that of the corporate sector. The model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch, namely, their severity, their protractedness, and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns. The model captures the tentative and halting nature of recoveries from crises.

JEL-codes: E02 E32 E51 G01 G21 G32 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-cfn, nep-dge and nep-mac
Note: CF EFG ME
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Citations: View citations in EconPapers (9)

Published as Adriano A Rampini & S Viswanathan, 2019. "Financial Intermediary Capital," The Review of Economic Studies, vol 86(1), pages 413-455.

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Related works:
Journal Article: Financial Intermediary Capital (2019)
Working Paper: Financial Intermediary Capital (2018)
Working Paper: Financial Intermediary Capital (2010)
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