Uncertainty and Investment: The Financial Intermediary Balance Sheet Channel
Electronic Access:
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Summary:
Rollover risk imposes market discipline on banks’ risk-taking behavior but it can be socially costly. I present a two-sided model in which a bank simultaneously lends to a firm and borrows from the short-term funding market. When the bank is capital constrained, uncertainty in asset quality and rollover risk create a negative externality that spills over to the real economy by ex ante credit contraction. Macroprudential and monetary policies can be used to reduce the social cost of market discipline and improve efficiency.
Series:
Working Paper No. 2015/065
Subject:
Asset and liability management Asset valuation Banking Credit Financial institutions Financial regulation and supervision Financial statements Liquidity requirements Money Public financial management (PFM) Stocks
English
Publication Date:
March 20, 2015
ISBN/ISSN:
9781475593167/1018-5941
Stock No:
WPIEA2015065
Pages:
30
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