Financial Intermediation, Capital Accumulation and Crisis Recovery

Gersbach, Hans, Rochet, Jean-Charles and Scheffel, Martin (2018) Financial Intermediation, Capital Accumulation and Crisis Recovery. TSE Working Paper, n. 18-885, Toulouse

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Official URL: http://tse-fr.eu/pub/32399

Abstract

This paper integrates banks into a two-sector neoclassical growth model to account for the fact that a fraction of firms relies on banks to finance their investments. There are four major contributions to the literature: First, although banks’ leverage amplifies shocks, the endogenous response of leverage to shocks is an automatic stabilizer that improves the resilience of the economy. In particular, financial and labor market institutions are essential factors that determine the strength of this automatic stabilization. Second, there is a mix of publicly financed bank re-capitalization, dividend payout restrictions, and consumption taxes that stimulates a Pareto-improving rapid build-up of bank equity and accelerates economic recovery after a slump in the banking sector. Third, the model replicates typical patterns of financing over the business cycle: procyclical bank leverage, procyclical bank lending, and countercyclical bond financing. Fourth, the framework preserves its analytical tractability wherefore it can serve as a macro-banking module that can be easily integrated into more complex economic environments.

Item Type: Monograph (Working Paper)
Language: English
Date: January 2018
Place of Publication: Toulouse
Uncontrolled Keywords: Financial intermediation, capital accumulation, banking crisis, macroeconomic shocks, business cycles, bust-boom cycles, managing recoveries
JEL codes: E21 - Macroeconomics - Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
E32 - Business Fluctuations; Cycles
G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28 - Government Policy and Regulation
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 24 Apr 2018 09:31
Last Modified: 24 Apr 2018 09:31
OAI ID: oai:tse-fr.eu:32399
URI: http://publications.ut-capitole.fr/id/eprint/25820

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