Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53893
Authors: 
Tomura, Hajime
Year of Publication: 
2010
Series/Report no.: 
Bank of Canada Working Paper 2010,22
Abstract: 
This paper presents a dynamic general equilibrium model where asymmetric information about asset quality leads to asset illiquidity. Banking arises endogenously in this environment as banks can pool illiquid assets to average out their idiosyncratic qualities and issue liquid liabilities backed by pooled assets whose total quality is public information. Moreover, the liquidity mismatch in banks' balance sheets leads to endogenous bank capital (outside equity) requirements for preventing bank runs. The model indicates that banking has both positive and negative effects on long-run economic growth and that business-cycle dynamics of asset prices, asset illiquidity and bank capital requirements are interconnected.
Subjects: 
Financial stability
financial system regulation and policies
JEL: 
E44
G21
D82
Document Type: 
Working Paper

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