Abstract:We develop a general model of the financial system that allows for the evaluation of bank regulation. Our framework comprises the agents and institutions that have proved crucial in the propagation of the subprime mortgage shock in the U.S. into a global financial crisis: Commercial banks and investment banks, which can also be interpreted as shadow banks, interact on wholesale debt markets. Beside a market for short term interbank loans and long term bank bonds, other funding sources include insured customer … Show more
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