Essays on Financial Intermediation and Financial Stability

Abstract

This thesis analyzes key determinants of financial intermediation and financial stability in three self-contained parts. <br /> The first part explores banks' lending behavior by analyzing the social ties within a society as an information channel in bank lending. It reveals that social connectedness increases lending, constitutes an information channel that benefits banks and the real economy, and partly explains the effects of physical distance. Thereby, the analysis complements two strands of literature that examine the lending barriers posed by distances and the efficiency of lending between peers. <br /> Turning to financial stability, part two focuses on asset price bubbles, a primary source of financial fragility throughout history. It shows that the increase in financial fragility during asset price bubbles strongly differs across bank and also across bubble characteristics. The analysis yields several policy implications and adds a bank-level perspective to the macro-finance literature on asset price bubbles and financial crises. <br /> The third part focuses on macroprudential regulation, one of the past decade's main regulatory innovations aimed at supporting financial stability. It supplements the literature, which reveals a wide array of channels through which this regulation has beneficial and detrimental effects, with an assessment of the overall consequences of macroprudential regulation for systemic financial stability. The results show that macroprudential tools can benefit financial stability, but they also call for supranational coordination of macroprudential regulation.