The Governance of Perpetual Financial Intermediaries

28 Pages Posted: 16 Mar 2011

See all articles by José Penalva

José Penalva

Universidad Carlos III, Madrid - Department of Business Administration

Jos van Bommel

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: March 16, 2011

Abstract

In this paper we investigate the risk sharing potential of financial intermediaries in an overlapping generations economy. We find that the intermediaries’ allocations are constrained by the temptation of the living to liquidate their intermediary’s assets and share the proceeds amongst themselves. We characterize the characterize this constraint set, and show that only intermediaries that can avoid side trading and the rolling over of deposits can improve on the market allocation. Furthermore, intermediaries may not achieve the constrained optimal allocation because the living are not willing to build a sufficiently large asset buffer.

Keywords: Financial Intermediation, Overlapping Generations

JEL Classification: G21, D91

Suggested Citation

Penalva, José and Bommel, Jos van, The Governance of Perpetual Financial Intermediaries (March 16, 2011). Available at SSRN: https://ssrn.com/abstract=1787986 or http://dx.doi.org/10.2139/ssrn.1787986

José Penalva (Contact Author)

Universidad Carlos III, Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, 28903
Spain

Jos van Bommel

affiliation not provided to SSRN

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