Recapitalization, bailout, and long-run welfare in a dynamic model of banking
- 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.
Author: | Andrea Modena |
---|---|
URN: | urn:nbn:de:hebis:30:3-552282 |
DOI: | https://doi.org/10.2139/ssrn.3712211 |
Parent Title (English): | SAFE working paper series ; No. 292 |
Series (Serial Number): | SAFE working paper (292) |
Publisher: | SAFE |
Place of publication: | Frankfurt am Main |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2020 |
Year of first Publication: | 2020 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2020/10/20 |
Tag: | bailout; banks; financial frictions; general equilibrium; recapitalization; welfare |
Issue: | This Version: 14th October 2020 |
Page Number: | 54 |
HeBIS-PPN: | 471426938 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |