International College of Economics and Finance

ICEF/LFE Research Seminar in Finance by David Miera Martinez (Universidad Carlos III de Madrid)

On Thursday, April 24 at 4.40 pm International College of Economics and Finance and International Labouratory of Financial Economics held a research seminar in Finance.
Speaker: David Miera Martinez (Universidad Carlos III de Madrid)
Theme:  «A Macroeconomic Model of Endogenous Systemic Risk Taking»
Venue:  Shabolovka st., 26, room  3211

Abstract: We analyze banks’ systemic risk-taking decisions in a simple dynamic general equilibrium model. Banks make loans to firms and are subject to capital requirements. Bankers decide their (unobservable) exposure to infrequent systemic shocks by trading off risk-shifting gains coming from limited liability and deposit insurance with the value of preserving their capital after a shock. Capital requirements reduce credit and output in “normal times,” but also banks’ systemic risk taking and, hence, the losses caused by systemic shocks. Under our calibration, optimal capital requirements are high, have a sizeable impact on welfare and economic activity, and should be gradually introduced.

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