Now, suppose there is perfect competition among banks in both periods. What would the repayment rate R(1)c be that the bank would charge in the first period? What would the repayment rates Rs(2)c, RE(2 be in the second period paid by successful and unsuccessful borrowers? How does competition affect overall risk taking in this model and why? Explain your finding carefully.

Financial Economics A bank faces a pool of borrowers with measure one in two successive periods. In each period, each borrower wishes to borrow 1 unit from the bank. In each period, a low risk borrower’s project returns G = 2 with probability pg = 0.9 and 0 otherwise, while a high risk borrower’s project […]

Deposit insurance: How to deal with moral hazard in banking.Discuss

Deposit insurance: How to deal with moral hazard in banking? The essay should contain 3 sections: i) Explaining the question posed(0,5 pages); ii) Summarizing most important literature (1 page), iii) Developing an answer: analytical, evidence-based (1,5 pages). The number of papers to use is 5. The papers must be from the leading (A) journals in […]

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