Bubble Bank

Osadchiy, Maksim and Sidorov, Alexander (2019): Bubble Bank.

Abstract

The paper considers a bank, left to itself, outside of regulation and supervision. The stochastic model allows us to describe the parameters, which create conditions both for the formation of bubbles in the credit market and for the formation of stable banks with self-restrictive behavior that do not require regulatory intervention. The comparative statics of equilibria is studied with respect to the basic parameters of the model, a theoretical assessment is carried out of the probability of bank default based on the values of exogenous factors. Our main task is to evaluate a bank probability of default not by using an econometric empirical approach, but by using microeconomic modeling.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banking microeconomics, Credit bubble, Probability of default, Capital adequacy ratio
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation

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