The Aggregate Demand for Bank Capital

54 Pages Posted: 19 Jul 2014 Last revised: 25 Nov 2018

See all articles by Milton Harris

Milton Harris

University of Chicago - Finance

Christian C. Opp

University of Pennsylvania - The Wharton School

Marcus M. Opp

Stockholm School of Economics - Department of Finance; Swedish House of Finance

Date Written: November 21, 2018

Abstract

We propose a novel conceptual approach to characterizing the credit market equilibrium in economies with multi-dimensional borrower heterogeneity. Our method is centered around a micro-founded representation of borrowers' aggregate demand correspondence for bank capital. The framework yields closed-form expressions for the composition and pricing of credit, including a sufficient statistic for the provision of bank loans. Our analysis sheds light on the roots of compositional shifts in credit toward risky borrowers prior to the most recent crises in the U.S. and Europe, as well as the macroprudential effects of bank regulations, policy interventions, and financial innovations providing alternatives to banks.

Keywords: Institutional asset demand and pricing, Composition of credit, Bank capital, Non-bank competition, Bailouts, Credit-rationing, Overinvestment, Crowding out.

JEL Classification: G11, G12, G18, G21, G22, G23, G28

Suggested Citation

Harris, Milton and Opp, Christian C. and Opp, Marcus M., The Aggregate Demand for Bank Capital (November 21, 2018). Available at SSRN: https://ssrn.com/abstract=2467761 or http://dx.doi.org/10.2139/ssrn.2467761

Milton Harris

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773) 702-2549 (Phone)
(773) 753-8310 (Fax)

HOME PAGE: http://faculty.chicagobooth.edu/milton.harris/

Christian C. Opp

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-573-3186 (Phone)

Marcus M. Opp (Contact Author)

Stockholm School of Economics - Department of Finance ( email )

SE-113 83 Stockholm
Sweden

Swedish House of Finance

Drottninggatan 98
111 60 Stockholm
Sweden

Register to save articles to
your library

Register

Paper statistics

Downloads
558
Abstract Views
2,844
rank
47,921
PlumX Metrics