A Macroeconomic Model of Endogenous Systemic Risk Taking

Martinez Miera, David; Suarez, Javier

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A Macroeconomic Model of Endogenous Systemic Risk Taking

CEPR Discussion Paper No. DP9134

54 Pages Posted: 28 Sep 2012

See all articles by David Martinez Miera

David Martinez Miera

Charles III University of Madrid; Center for Economic Policy Research

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: September 2012

Abstract

We analyze banks' systemic risk taking in a simple dynamic general equilibrium model. Banks collect funds from savers and make loans to firms. Banks are owned by risk-neutral bankers who provide the equity needed to comply with capital requirements. Bankers decide their (unobservable) exposure to systemic shocks by trading off risk-shifting gains with the value of preserving their capital after a systemic shock. Capital requirements reduce credit and output in

Keywords: Capital requirements, Credit cycles, Financial crises, Macroprudential policies, Risk shifting, Systemic risk

JEL Classification: E44, G21, G28

Suggested Citation: Suggested Citation

Martinez Miera, David and Suarez, Javier, A Macroeconomic Model of Endogenous Systemic Risk Taking (September 2012). CEPR Discussion Paper No. DP9134, Available at SSRN: https://ssrn.com/abstract=2153575