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Princeton University Library Catalog
Competition vs. Stability : Oligopolistic Banking System with Run Risk / Damien Capelle.
Washington, D.C. : International Monetary Fund, 2021.
1 online resource (74 pages)
IMF Working Papers; Working Paper ; No. 2021/102
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IMF Working Papers
This paper develops a model where large financial intermediaries subject to systemic runs internalize the effect of their leverage on aggregate risk, returns and asset prices. Near the steady-state, they restrict leverage to avoid the risk of a run which gives rise to an accelerator effect. For large adverse shocks, the system enters a zone with high leverage and possibly runs. The length of time the system remains in this zone depends on the degree of concentration through a franchise value, price-drop and recapitalization channels. The speed of entry of new banks after a collapse has a stabilizing effect.
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Competition vs. Stability : Oligopolistic Banking System with Run Risk