TY  - UNPD
A1  - Modena, Andrea
T1  - Recapitalization, bailout, and long-run welfare in a dynamic model of banking
T2  - SAFE working paper series ; No. 292
N2  - This paper studies the link between bank recapitalization and welfare in a dynamic production economy. The model features financial frictions because banks benefit of a cost advantage at monitoring firms and face costly equity issuance. The competitive equilibrium outcome is inefficient because agents do not internalize the effects banks’ capitalization over the allocation of capital, its price and, in turn, firms investments. It follows, individual recapitalizations are sub-optimal and bailout policies may benefit social welfare in the long-run. Bailouts improve capital allocation in states where aggregate banks are poorly capitalized, therefore enhancing their market valuation, fostering investments, and stabilizing the economy recovery path.
T3  - SAFE working paper - 292 
KW  - banks
KW  - bailout
KW  - general equilibrium
KW  - financial frictions
KW  - recapitalization
KW  - welfare
Y1  - 2020
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/55228
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-552282
IS  - This Version: 14th October 2020
PB  - SAFE
CY  - Frankfurt am Main
ER  -