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Titelaufnahme
- TitelDo risk premia protect from banking crises?
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- SpracheEnglisch
- DokumenttypArbeitspapier
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Abstract
This paper studies the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping generation model subject to repeated macroeconomic shocks. We show that even if banks fully incorporate macroeconomic risks in their pricing of loans, a banking system may enter bankruptcy with a probability of one. A major cause for this default is that risk premia of a competitive banking system may become too small if the capital base is low.
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