Discussion paper

DP9134 A Macroeconomic Model of Endogenous Systemic Risk Taking

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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Citation

Suarez, J and D Martinez-Miera (2012), ‘DP9134 A Macroeconomic Model of Endogenous Systemic Risk Taking‘, CEPR Discussion Paper No. 9134. CEPR Press, Paris & London. https://cepr.org/publications/dp9134