Discussion Paper Details

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Title: A Macroeconomic Model of Endogenous Systemic Risk Taking

Author(s): David Martinez-Miera and Javier Suarez

Publication Date: September 2012

Keyword(s): Capital requirements, Credit cycles, Financial crises, Macroprudential policies, Risk shifting and Systemic risk

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: We analyze banks' systemic risk taking in a simple dynamic general equilibrium model. Banks collect funds from savers and make loans to firms. Banks are owned by risk-neutral bankers who provide the equity needed to comply with capital requirements. Bankers decide their (unobservable) exposure to systemic shocks by trading off risk-shifting gains with the value of preserving their capital after a systemic shock. Capital requirements reduce credit and output in

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Bibliographic Reference

Martinez-Miera, D and Suarez, J. 2012. 'A Macroeconomic Model of Endogenous Systemic Risk Taking'. London, Centre for Economic Policy Research.