Risk, Leverage, and Regulation of Financial Intermediaries
نویسندگان
چکیده
This paper presents a model on the leverage of nancial intermediaries, where debt are held by risk averse agents and equity by the risk neutral. The paper shows that in an unregulated competitive market, nancial intermediaries choose to be leveraged over the social best level. This is because the leverage of one intermediary imposes a negative externality upon others by reducing their pro t margins. The paper thus founds capital adequacy regulation upon the market failure and suggests that this regulation should bind not only commercial banks, but all nancial intermediaries, including private equities and hedge funds.
منابع مشابه
Risk Sharing, (Over)Leverage, and Regulation
The paper examines the leverage of nancial intermediaries in a general equilibrium framework. The papers approach is driven by risk sharing and captures two features: Debt serves to boost the return of equity and equity to "safe net" debt. The paper nds that if entrepreneurs cannot obtain cheaper credit from nancial intermediaries by reducing the investment scales, the equilibrium leverage ...
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