Financial crises,bankriskexposureandgovernmentfinancialpolicy

A macroeconomicmodelwithfinancialintermediationisdevelopedinwhichthe intermediaries(banks)canissueoutsideequityaswellasshorttermdebt.Thismakes bank riskexposureanendogenouschoice.Thegoalistohaveamodelthatcannotonly capture acrisiswhenbanksarehighlyvulnerabletorisk,butcanalsoaccountforwhy banks adoptsuchariskybalancesheetinthefirstplace.Weusethemodeltoassess quantitativelyhowperceptionsoffundamentalriskandofgovernmentcreditpolicyina crisisaffectthevulnerabilityofthefinancialsystemexante.Wealsostudytheeffectsof macro-prudentialpoliciesdesignedtooffsettheincentivesforrisk-taking.