Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279457 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 2023-2
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
Are financial intermediaries-in particular, banks-inherently unstable or fragile, and if so, why? We address this question theoretically by analyzing whether model economies with financial intermediation are more prone than those without it to multiple, cyclic, or stochastic equilibria. We consider several formalizations: insurance-based banking, models with reputational considerations, those with fixed costs and delegated investment, and those where bank liabilities serve as payment instruments. Importantly for the issue at hand, in each case banking arrangements arise endogenously. While the economics and mathematics differ across specifications, they all predict that financial intermediation engenders instability in a precise sense.
Subjects: 
banking
financial intermediation
instability
volatility
JEL: 
D02
E02
E44
G21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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