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The invisible hand and the banking trade : seigniorage, risk-shifting and more
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Miller, Marcus and Zhang , Lei (2013) The invisible hand and the banking trade : seigniorage, risk-shifting and more. Working Paper. Coventry, UK: Department of Economics, University of Warwick. CAGE Online Working Paper Series, Volume 2013 (Number 135).
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Text (Working paper)
WRAP_ 135-miller.pdf - Published Version Download (901Kb) | Preview |
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Abstract
The classic Diamond-Dybvig model of banking assumes perfect
competition and abstracts from issues of moral hazard, hardly appropriate
when considering modern UK banking. We therefore modify the
classic model to incorporate franchise values due to market power; and
risk-taking by banks with limited liability. We go further to show how
the capacity of franchise values to mitigate risk taking may be undermined
by the bailout option; with explicit analytical results provided
for the case of extreme risk-aversion. After a brief discussion of how
this may impact on the distribution of income, we outline the ways in
which the Vickers Report seeks to remedy these problems.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Alternative Title: | |||||
Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Banks and banking, Seigniorage (Finance), Bailouts (Government policy), Financial risk | ||||
Series Name: | CAGE Online Working Paper Series | ||||
Publisher: | Department of Economics, University of Warwick | ||||
Place of Publication: | Coventry, UK | ||||
Official Date: | June 2013 | ||||
Dates: |
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Volume: | Volume 2013 | ||||
Number: | Number 135 | ||||
Number of Pages: | 27 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Published | ||||
Date of first compliant deposit: | 13 February 2018 | ||||
Date of first compliant Open Access: | 13 February 2018 | ||||
Funder: | Economic and Social Research Council (Great Britain) (ESRC), University of Warwick |
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