Safety Transformation and the Structure of the Financial System

Diamond, William

doi:10.2139/ssrn.3219332

Cited by 20 publications

(21 citation statements)

References 10 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…I depart from Diamond () in four important respects. To simplify the model, I assume that savings are exogenous and randomly distributed across households within an economy but that there are greater average household savings in economies that rely on prefunded private pensions (i.e., economies that are less dependent on PAYGO public pensions).…”

Section: Summary Statistics Of Pension Variablesmentioning

confidence: 99%

“…I model banks using the basic insights of Diamond's () model of financial intermediation in which financial intermediaries emerge endogenously to satisfy household demand for money‐like claims. While many of the details of the two models differ, in both models intermediaries invest in relatively safe assets and households invest in relatively risky capital market assets along with safe money‐like claims issued by intermediaries.…”

Section: Modelmentioning

confidence: 99%

“…Third, given that

θ γ x > θ x + A

, households never want to invest directly in the low‐risk project as they have access to the better high‐risk project. These arguments imply a perfect segmentation of investment as in Diamond () whereby banks invest in low‐risk projects and households invest in high‐risk projects. Thus,

I_{L}^{b} > 0

I_{H}^{b} = 0

I_{L}^{m} = 0

, and

I_{H}^{m} > 0

.…”

Section: Modelmentioning

confidence: 99%

“…By contrast, Diamond () shows that banks want to hold relatively safe debt instruments, which leads entrepreneurs to issue such claims.…”

mentioning

confidence: 99%

“…This is essentially the model of Lacker and Weinberg (), which Diamond () uses in a more general specification of the diversion function to model the agency costs of bank equity.…”

mentioning

confidence: 99%

See 4 more Smart Citations

Presidential Address: Pension Policy and the Financial System

Scharfstein

2018

The Journal of Finance

View full text Add to dashboard Cite

In this paper, I examine the effect of pension policy on the structure of financial systems around the world. In particular, I explore the hypothesis that policies that promote pension savings also promote the development of capital markets. I present a model that endogenizes the extent to which savings are intermediated through banks or capital markets, and derive implications for corporate finance, household finance, banking, and the size of the financial sector. I then present a number of facts that are broadly consistent with the theory and examine a variety of alternative explanations of my findings.

show abstract

Section: Summary Statistics Of Pension Variablesmentioning

confidence: 99%

Section: Modelmentioning

confidence: 99%

“…Third, given that

θ γ x > θ x + A

I_{L}^{b} > 0

I_{H}^{b} = 0

I_{L}^{m} = 0

, and

I_{H}^{m} > 0

.…”

Section: Modelmentioning

confidence: 99%

“…By contrast, Diamond () shows that banks want to hold relatively safe debt instruments, which leads entrepreneurs to issue such claims.…”

mentioning

confidence: 99%

“…This is essentially the model of Lacker and Weinberg (), which Diamond () uses in a more general specification of the diversion function to model the agency costs of bank equity.…”

mentioning

confidence: 99%

See 3 more Smart Citations

Presidential Address: Pension Policy and the Financial System

Scharfstein

2018

The Journal of Finance

View full text Add to dashboard Cite

show abstract

Credit ratings and structured finance

Josephson

Shapiro

2020

Journal of Financial Intermediation

View full text Add to dashboard Cite

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

show abstract

Private money creation with safe assets and term premia

Infante

2020

Journal of Financial Economics

View full text Add to dashboard Cite

It has been documented that an increase in the demand for safe assets induces the private sector to create more money-like claims. Focusing on private repos backed by U.S. Treasury securities, I show that an increase in the demand for safe assets leads to a decreases in the issuance of Treasury repos. The intuition is that Treasury securities already function as a safe asset, thus in terms of safe asset creation, private Treasury repos are neutral. In the model, Treasury repos are beneficial because they shift risk (i.e. term premia) from relatively risk averse households to a more risk tolerant financial sector, which issues repos to finance its portfolio. When the demand for safe assets increases, Treasury securities are reallocated to households, reducing the amount of Treasury repo issued by the financial sector. By contrast, Treasury repos created by the Federal Reserve's RRP program-a safe asset created by the public sector-increase with the demand for safe assets. I show the data supports the model's main predictions. * I would like to thank seminar participants in the MA lunch, Mark Carlson, Francisco Vazquez-Grande, Jason Wu, and Egon Zakrajsek for very insightful discussions, and Joseph Shadel for excellent research assistance. The views of this paper are solely the responsibility of the author and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or of any other person associated with the Federal Reserve System.

show abstract

Safety Transformation and the Structure of the Financial System

Cited by 20 publications

References 10 publications

Presidential Address: Pension Policy and the Financial System

Presidential Address: Pension Policy and the Financial System

Credit ratings and structured finance

Private money creation with safe assets and term premia

Contact Info

Product

Resources

About