Financial Intermediary Capital


Scholarly Edition

© The Author(s) 2018. We propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households, that is, have a collateralization advantage. Intermediaries require capital as they have to finance the additional amount that they can lend out of their own net worth. The net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity, such as investment, and financing. The accumulation of net worth of intermediaries is slow relative to that of the corporate sector. The model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch, namely, their severity, their protractedness, and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns. The model captures the tentative and halting nature of recoveries from crises.

Full Text

Duke Authors

Cited Authors

  • Rampini, AA; Viswanathan, S

Published Date

  • January 1, 2019

Start / End Page

  • 413 - 455

Digital Object Identifier (DOI)

  • 10.1093/restud/rdy020

Citation Source

  • Scopus