As part of the series of the „Finance Research Seminar“, VGSF welcomes Yuliyan Mitkov from the University of Vienna to present his research paper.
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Paper
Optimal Financial Intermediation
An influential view holds that financial fragility disciplines intermediaries that create value but cannot commit to act in creditors’ interests, thereby explaining the existence of fragile institutions such as banks. We argue that limited commitment alone does not make fragility and therefore fragile institutions optimal. Instead, we identify government guarantees as a rationale for deposit financing. We also show that even substantial contracting frictions need not make fragility optimal. The model yields testable predictions consistent with empirical regularities in the fund industry and speaks to the recent shift in credit markets from banks towards non-bank financial intermediaries.
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