Do risk premia protect against banking crises?
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Author / Producer
Date
2008
Publication Type
Journal Article
ETH Bibliography
yes
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Abstract
This paper examines the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping-generations model subject to repeated macroeconomic shocks. We show that even if banks fully incorporate macroeconomic risks into their pricing of loans, a banking system may enter bankruptcy with probability one. A major cause for this default is that risk premia of a competitive banking system may become too small if the capital base is low.
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Publication status
published
External links
Editor
Book title
Journal / series
Volume
12
Pages / Article No.
100 - 111
Publisher
Cambridge University Press
Event
Edition / version
Methods
Software
Geographic location
Date collected
Date created
Subject
financial intermediation; macroeconomic risks; banking crises; risk premia; banking regulation
Organisational unit
03729 - Gersbach, Hans / Gersbach, Hans
Notes
It was possible to publish this article open access thanks to a Swiss National Licence with the publisher