Financial Intermediary Capital

73 Pages Posted: 15 Mar 2011 Last revised: 13 Mar 2018

See all articles by Adriano A. Rampini

Adriano A. Rampini

Duke University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

S. Viswanathan

Duke University - Fuqua School of Business; Duke University - Department of Economics

Multiple version iconThere are 4 versions of this paper

Date Written: March 1, 2018

Abstract

We propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households, that is, have a collateralization advantage. Intermediaries require capital as they have to finance the additional amount that they can lend out of their own net worth. The net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity, such as investment, and financing. The accumulation of net worth of intermediaries is slow relative to that of the corporate sector. The model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch, namely, their severity, their protractedness, and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns. The model captures the tentative and halting nature of recoveries from crises.

Keywords: Collateral, Financial Intermediation, Financial Constraints, Investment

JEL Classification: G21, G32, E44, E32

Suggested Citation

Rampini, Adriano A. and Viswanathan, S., Financial Intermediary Capital (March 1, 2018). Available at SSRN: https://ssrn.com/abstract=1785877 or http://dx.doi.org/10.2139/ssrn.1785877

Adriano A. Rampini (Contact Author)

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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S. Viswanathan

Duke University - Fuqua School of Business ( email )

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United States
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919-684-2818 (Fax)

Duke University - Department of Economics

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