Unstable banking

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Unstable banking

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Title: Unstable banking
Author: Shleifer, Andrei; Vishny, Robert W.

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Citation: Shleifer, Andrei, and Robert W. Vishny. 2010. “Unstable Banking.” Journal of Financial Economics 97 (3) (September): 306–318. doi:10.1016/j.jfineco.2009.10.007.
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Abstract: We propose a theory of financial intermediaries operating in markets influenced by investor sentiment. In our model, banks make, securitize, distribute, and trade loans, or they hold cash. They also borrow money, using their security holdings as collateral. Banks maximize profits, and there are no conflicts of interest between bank shareholders and creditors. The theory predicts that bank credit and real investment will be volatile when market prices of loans are volatile, but it also points to the instability of banks, especially leveraged banks, participating in markets. Profit- maximizing behavior by banks creates systemic risk.
Published Version: doi:10.1016/j.jfineco.2009.10.007
Other Sources: http://www.nber.org/papers/w14943
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:33077921
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