Optimal Regulation of Financial Intermediaries /
Tella, Sebastian Di.
Optimal Regulation of Financial Intermediaries / Sebastian Di Tella. - Cambridge, Mass. National Bureau of Economic Research 2017. - 1 online resource: illustrations (black and white); - NBER working paper series no. w23586 . - Working Paper Series (National Bureau of Economic Research) no. w23586. .
July 2017.
I characterize the optimal financial regulation policy in an economy where financial intermediaries trade capital assets on behalf of households, but must retain an equity stake to align incentives. Financial regulation is necessary because intermediaries cannot be excluded from privately trading in capital markets. They don't internalize that high asset prices force everyone to bear more risk. The socially optimal allocation can be implemented with a tax on asset holdings. I derive a sufficient statistic for the externality/optimal policy in terms of observable variables, valid for heterogenous intermediaries and asset classes, and arbitrary aggregate shocks. I use market data on leverage and volatility of intermediaries' equity to measure the externality, which co-moves with the business cycle.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
Optimal Regulation of Financial Intermediaries / Sebastian Di Tella. - Cambridge, Mass. National Bureau of Economic Research 2017. - 1 online resource: illustrations (black and white); - NBER working paper series no. w23586 . - Working Paper Series (National Bureau of Economic Research) no. w23586. .
July 2017.
I characterize the optimal financial regulation policy in an economy where financial intermediaries trade capital assets on behalf of households, but must retain an equity stake to align incentives. Financial regulation is necessary because intermediaries cannot be excluded from privately trading in capital markets. They don't internalize that high asset prices force everyone to bear more risk. The socially optimal allocation can be implemented with a tax on asset holdings. I derive a sufficient statistic for the externality/optimal policy in terms of observable variables, valid for heterogenous intermediaries and asset classes, and arbitrary aggregate shocks. I use market data on leverage and volatility of intermediaries' equity to measure the externality, which co-moves with the business cycle.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.