Project Details
Projekt
Illiquidity, Insolvency, and Bank Regulation
Applicant
Professor Dr. Gerhard Illing
Subject Area
Economic Policy, Applied Economics
Term
from 2012 to 2019
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 201956741
In this project, we plan to extend our research on the role of inter-linkages between financial institutions for both micro and macro financial stability. During the first period of the priority program, we provided a framework for regulatory analysis of systemic liquidity shocks, focussing on investment decisions of banks and hence on the asset side composition of balance sheets. Extending that work, we plan develop a micro-founded setup of the banking industry modelling both asset and liability choices of banks. Our model will allow for interactions between peer institutions through interbank lending and capture industry-wide effects of (micro-prudential) regulatory measures, while also allowing for endogenous balance sheet adjustments. By taking explicit consideration for (empirically observable) market structure we will be in the position to not only study banking industry dynamics in response to economic shock or macro-prudential regulation but also to the macro effects of micro-prudential regulation, as for example proposed by the Basel III framework. Unifying these two perspectives is of key importance for a theoretical foundation of regulation, as well as for future development of policy tools. Finally, we plan to analyze the active role central banks take in managing money supply in the economy, focusing on the strategic feedback between central banks monetary policy and banks investment decisions aiming to analyze the role of money as safe asset.
DFG Programme
Priority Programmes
