Bank Heterogeneity and Financial Stability / Itay Goldstein, Alexandr Kopytov, Lin Shen, Haotian Xiang.

Format:

Book

Author/Creator:

Goldstein, Itay.

Contributor:

National Bureau of Economic Research.

Kopytov, Alexandr.

Shen, Lin.

Xiang, Haotian.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27376.

NBER working paper series no. w27376

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We study how heterogeneity in banks' asset holdings affects fragility. In the model, banks face a risk of bank runs and have to liquidate long-term assets in a common market to repay runners. Liquidation prices are depressed when many banks sell their assets at the same time. When banks are homogeneous, their selling behaviors are synchronized, and bank runs are exacerbated. We show that differentiating banks to some extent enhances the stability of all banks, even those whose asset performance ends up being weaker. Our analyses provide new insights about the regulation of banking sector's architecture and the design of government support during crises.

Notes:

Print version record

June 2020.