How much capital should financial intermediaries hold? We propose a general equilibrium model with a financial sector that makes risky long-term loans to firms, funded by deposits from savers. Government guarantees create a role for bank capital regulation. The model captures the sharp and persistent drop in macro-economic aggregates and credit provision as well as the sharp change in credit spreads observed during the Great Recession. Policies requiring intermediaries to hold more capital reduce financial fragility, reduce the size of the financial and non-financial sectors, and locally increase macro-economic volatility. They redistribute wealth from savers to the owners of banks and non-financial firms. Current capital requirements are close to optimal.
Elenev, Vadim, Tim Landvoigt, and Stijn Van Nieuwerburgh. "A Macroeconomic Model with Financially Constrained Producers and Intermediaries." Columbia Business School, March 2020.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.