Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/69991
Authors: 
De Nicolò, Gianni
Lucchetta, Marcella
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper: Monetary Policy and International Finance 4123
Abstract: 
We study the welfare properties of a general equilibrium banking model with moral hazard that encompasses incentive mechanisms for bank risk-taking studied in a large partial equilibrium literature. We show that competitive equilibriums maximize welfare and yield an optimal level of banks' risk of failure. This result holds even though the risk of failure of competitive banks is higher than that of banks enjoying monopoly rents, and is robust to the introduction of social costs of bank failures. In this model, there is no trade-off between bank competition and financial stability.
Subjects: 
general equilibrium
bank competition
financial stability
JEL: 
D50
G21
Document Type: 
Working Paper

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