Details

Series

• IMF Working Papers; Working Paper ; No. 2021/102 [More in this series]
• IMF Working Papers

Summary note

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.

Source of description

Description based on print version record.

Doi

• 10.5089/9781513582313.001

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