Financial Intermediary Capital

39 Pages Posted: 18 Mar 2011 Last revised: 18 Mar 2012

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: November 1, 2011

Abstract

We propose a dynamic theory of financial intermediaries as collateralization specialists that are better able to collateralize claims than households. Intermediaries require capital as they can borrow against their loans only to the extent that households themselves can collateralize the assets backing the loans. 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. A credit crunch has persistent real effects and can result in a delayed or stalled recovery. We provide sufficient conditions for the comovement of the marginal value of firm and intermediary capital.

Keywords: Collateral, Financial intermediation, Financial constraints, Investment

JEL Classification: E32, E51, G21, G32

Suggested Citation

Rampini, Adriano A. and Viswanathan, S., Financial Intermediary Capital (November 1, 2011). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1785723 or http://dx.doi.org/10.2139/ssrn.1785723

Adriano A. Rampini (Contact Author)

Duke University ( email )

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HOME PAGE: http://faculty.fuqua.duke.edu/~rampini/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
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Centre for Economic Policy Research (CEPR) ( email )

London
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S. Viswanathan

Duke University - Fuqua School of Business ( email )

Durham, NC 27708-0120
United States
919-660-7784 (Phone)
919-684-2818 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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